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APPARADISELANDSCAPE
August 23, 2023
Question

Vehicle Financing

  • August 23, 2023
  • 1 reply
  • 0 views

We recently purchased a company vehicle and financed the purchase:

Vehicle purchase price: 175,000

Funding provided (loan amount): 175,000

Finance charge: 34,034 (If loan is paid off early the entire amount of the finance charge is due)

Origination Fee due at commencement: 595.00 (Included with first payment of 5,572)

Total Payment amount: 209,629

Term: 42 months

Fixed monthly payment: 4,977 per month

In addition, we paid non-refundable 17,500 advance (origination fee)

My initial thought was to set up a secondary liability for the finance charge and expense it monthly. However, I cannot post the initial amount as cost of asset if it's a cost of loan, but neither can I expense the entire amount upfront, since it is payable over 42 months and has to be reflected on the balance sheet. Question is how do I set up this purchase and financing in QBO?

Your help is appreciated.

 

 

 

1 reply

MariaSoledadG
MariaSoledadG
August 23, 2023

Let me guide you on how you can record vehicle financing, Apparadise.

 

In QuickBooks Online (QBO), you can set up a liability account to record the loan. To set up a liability account, follow the steps provided below:

 

  1. Go to the Gear Icon at the top.
  2. Under Your Company, select Chart of Accounts.
  3. On the right, click New.
  4. Choose either Other Current Liabilities or Long-term Liabilities.
  5. Pick a detail type (a description is listed for each option), then Next.
  6. Name the account.
  7. Leave the Unpaid Balance blank, then Hit Save.

 

Once done, create a Journal Entry to apply the loan to the proper assets accounts. Here's how:

 

  1. Go to the + New.
  2. Under the Other column, choose Journal Entry.
  3. For the first line under the Account column, select your new liability account.
  4. Enter the amount of the loan you’re applying to the asset under the Credits column.
  5. For the second line, select the appropriate asset account under the Account column.
  6. Under the Debits column, enter the amount of the loan you’re applying to the asset.

 

To give you more information about the basics of how to set up loans for assets, consider checking out this article for reference: How Do I Record The Loan For An Asset?

 

However, I still suggest reaching out to your accounting for other ways how you can record your vehicle. Furthermore, QuickBooks provided several reports that you can use to show you the aspects of your business. Go through this article for more details: Run Reports In QuickBooks Online.

 

Leave a comment below if you have any concerns when recording vehicle financing. I'm only one post away if you need help. 

A
APPARADISELANDSCAPEAuthor
August 24, 2023

Thanks for your reply, but I understand the concept of how to set up a vehicle purchase with simple interest. This loan, however, has a fixed finance charge that is payable over the life of the loan and becomes due if we choose to do an early payoff. If I use the basic monthly reduction of principal and interest expense, the balance sheet would not accurately reflect the remaining finance charge, it would only show the remaining principal balance. The question remains, how do I initially set up the finance charge and how do I expense it as interest expense on a monthly basis?

MJoy_D
MJoy_D
August 24, 2023

I can share additional information about the finance charge, @APPARADISELANDSCAPE.

 

You can enter this as a Journal entry in QuickBooks Online (QBO). 

 

Here's how:

 

  1. Go to the + New button and select Journal entry.
  2. Enter your debit and credit accounts. 
  3. Check the amounts - you should have the same amount in the Credit column on one line and the Debit column on the other. This means the accounts are in balance.
  4. Enter information in the memo section so you know why you made the journal entry.
  5. Select Save and new or Save and close.

 

Still, I recommend consulting with an accountant to ensure that these transactions are handled correctly and accounted for properly. 

 

You can check this article for more information: Create journal entries in QuickBooks Online.

 

Here's also how you can set up and apply late fees to overdue invoices automatically in QuickBooks Online.

 

Let me know if you need further information about your finance charge. I'm always here to help. Have a great rest of the day!

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