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alexisdevelopments
August 28, 2019
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How do I record a used Truck with interest tacked on to the purchase price?

  • August 28, 2019
  • 2 replies
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I bought a used truck for $42104.33 that includes the $7373.03 interest, and GST/HST. To make matters more difficult, the loan is in a family members name, but I am paying the loan payments (and all truck expenses) from my business account. I would greatly appreciate any assistance in how to record these transactions, as I do not want to get it wrong. Thank you in advance!

Best answer by Rochelley

Hello @alexisdevelopments ,

 

This is not a truck expense.  It is a depreciating asset to your company, if you truly own it.  Also, it depends on whether you are incorporated or not as to how you write off the associated truck expenses.  If you are incorporated, you would make a JE for the truck purchase as follows (this is assuming a 13% HST tax is in play) :

 

Note that 1) The pre-tax cost of the vehicle is put to a Fixed Asset account, not an expense, 2) The loan needs to be set up as a Long Term Liability and 3) Interest is not a part of this initial transaction.

 

If your company is not incorporated but rather is a sole proprietorship, then you don't record any of this in your books.  You take care of the vehicle expenses on the personal income tax return on form T2125 B1, so you still need to keep all your records for tax time.   You would record the asset in the correct asset class (most likely Class 10 or 10.1) and only record the purchase price plus taxes.  The interest is handled in another part of the form.  You can only claim depreciation on the purchase price + taxes, not on the interest.  Also good to note is that if you are a sole proprietor or partnership, you still must keep a vehicle log and you can only write off the percentage of expenses that pertain to your business kilometres driven, for example, fuel, maintenance, insurance costs, etc.  These are not to be recorded in your books but only on this tax form at tax time.

 

Conversely, if  the vehicle is owned by a corporation, you can record 100% of that vehicle's operating and maintenance costs, although if it is not being used 100% for business, then a calculation must be made to attribute a portion of those costs to you personally, thus reducing the business write off  portion.

 

Carrying on with an incorporated company process subsequent to the purchase of the vehicle, you would then need to create an amortization list of your vehicle purchase.  This is a good one.  https://www.cchwebsites.com/content/calculators/CAAutoLoan.html.  

 

Here is a sample (with me making a lot of assumptions . . . i.e. a 60 mo (5 yr) term, and a fudged interest rate to come as close to the interest amount as you have indicated.)

You would click on View or Print report to get the payment schedule.  This is a very accurate calculator and if you input the correct numbers, you should come out to the exact same numbers as the bank.

 

 

Now you set up a JE each time a payment is made to the bank and split it between principal and interest according to this schedule.  In each journal entry you are going to decrease the amount of your loan, and increase an Interest expense account as follows:  (this is assumed to be the first payment in this schedule)

For each monthly payment you make, the principal and interest amount are going to change, with principal going up slightly each month and interest going down slightly.  Note when you check your Vehicle Loan Payable register, the original loan amount is being reduced by the amount of the Principal payment only.

 

 

Interest is the only thing you can write off as an expense for each payment, which shows on the P & L.

 

If you have an external accountant doing your T2 taxes for you, then once a year they will create a depreciation entry which will lower the amount of your Vehicle Fixed Asset account and increase a Depreciation expense account, the first showing on the Balance Sheet, and the second showing on the P & L.

 

Again, this is all moot unless you are an incorporated company.  Hope this helps!

2 replies

Angelyn_T
Angelyn_T
August 28, 2019

Hello, @alexisdevelopments.

 

I've got the steps on how to record loan in QuickBooks Desktop. I'm happy to help share them with you.

 

To record the loan, you can simply create a journal entry and record a check when paying the loan. Before creating a journal entry, you have to create expense accounts (truck and interest) and a liability account (Other Current Liability for short-term loans payable over one year and Long Term Liability for long-term loans payable over a longer period).

 

  1. On the QuickBooks homepage, go to the Lists menu.
  2. Select Chart of Accounts.
  3. Go to the Account drop-down arrow and select New.
  4. Select Expense for the expense accounts and Other Account Types for the loan liability (select either Other Current Liability or Long Term Liability).
  5. Click on Continue.
  6. Fill in the necessary information.
  7. Click on Save and close.

After, record a journal entry.

 

  1. Click on the Company menu.
  2. Select Make General Journal Entries.
  3. Add the entry date.
  4. Enter the correct account on your entry debits to your expense accounts (truck and interest) and credits to your loan account created.

To include the GST/HST tax, add the GST/HST Payable account and amount on the next line of your entry. On the other hand, to ensure that the amounts are correct, you may need to consult with a tax professional or an accountant.

 

When paying the loan, you can create a check to the liability account (family loan) used on the journal entry.

 

  1. Click on Banking at the top menu bar.
  2. Select Write Checks.
  3. Fill in the necessary information.
  4. Go to the Expense column.
  5. Select the liability account for the loan used on the journal entry.
  6. Add the amount of payment on the Amount column.
  7. Click on Save and close.

After following the steps provided, you should now be able to track your loan transaction.

 

In case you have any other QuickBooks concerns in the future, you can always check our help articles: Help articles for QuickBooks Desktop.

 

Let me know if you have any other questions about the steps provided above. I'm just a post away to help!

A
alexisdevelopmentsAuthor
August 28, 2019

Thank you so much. When entering GST/HST, do I debt that tax account and credit the Loan Liability account?

L
LauraAB
August 28, 2019

Hi alexisdevelopments,

 

Great question. I know it's important to debit and credit the correct accounts when doing these kinds of transactions. To know which account you need to hit where, I recommend speaking with an accountant. While we can offer how-to and technical support for the program itself, we can't offer advice on which accounts to use when.

 

To find an accountant that knows the ins and outs of QuickBooks Desktop, check out our Find an Accountant website. There, you can enter your postal code to find a ProAdvisor (an accoutant who has QuickBooks certification) near you.

 

To learn more about recording loans in QuickBooks Desktop, check out the in-product help options. Follow these steps.

 

  1. Select Help from the top menu.
  2. Choose QuickBooks Desktop Help (Note: A shortcut to get here without steps 1 and 2 is to press F1 on your keyboard while in the program).
  3. Click the Help tab.
  4. Press the Search button.
  5. Enter keywords into the search bar and hit enter to search.

Enjoy your day!

R
RochelleyAnswer
August 28, 2019

Hello @alexisdevelopments ,

 

This is not a truck expense.  It is a depreciating asset to your company, if you truly own it.  Also, it depends on whether you are incorporated or not as to how you write off the associated truck expenses.  If you are incorporated, you would make a JE for the truck purchase as follows (this is assuming a 13% HST tax is in play) :

 

Note that 1) The pre-tax cost of the vehicle is put to a Fixed Asset account, not an expense, 2) The loan needs to be set up as a Long Term Liability and 3) Interest is not a part of this initial transaction.

 

If your company is not incorporated but rather is a sole proprietorship, then you don't record any of this in your books.  You take care of the vehicle expenses on the personal income tax return on form T2125 B1, so you still need to keep all your records for tax time.   You would record the asset in the correct asset class (most likely Class 10 or 10.1) and only record the purchase price plus taxes.  The interest is handled in another part of the form.  You can only claim depreciation on the purchase price + taxes, not on the interest.  Also good to note is that if you are a sole proprietor or partnership, you still must keep a vehicle log and you can only write off the percentage of expenses that pertain to your business kilometres driven, for example, fuel, maintenance, insurance costs, etc.  These are not to be recorded in your books but only on this tax form at tax time.

 

Conversely, if  the vehicle is owned by a corporation, you can record 100% of that vehicle's operating and maintenance costs, although if it is not being used 100% for business, then a calculation must be made to attribute a portion of those costs to you personally, thus reducing the business write off  portion.

 

Carrying on with an incorporated company process subsequent to the purchase of the vehicle, you would then need to create an amortization list of your vehicle purchase.  This is a good one.  https://www.cchwebsites.com/content/calculators/CAAutoLoan.html.  

 

Here is a sample (with me making a lot of assumptions . . . i.e. a 60 mo (5 yr) term, and a fudged interest rate to come as close to the interest amount as you have indicated.)

You would click on View or Print report to get the payment schedule.  This is a very accurate calculator and if you input the correct numbers, you should come out to the exact same numbers as the bank.

 

 

Now you set up a JE each time a payment is made to the bank and split it between principal and interest according to this schedule.  In each journal entry you are going to decrease the amount of your loan, and increase an Interest expense account as follows:  (this is assumed to be the first payment in this schedule)

For each monthly payment you make, the principal and interest amount are going to change, with principal going up slightly each month and interest going down slightly.  Note when you check your Vehicle Loan Payable register, the original loan amount is being reduced by the amount of the Principal payment only.

 

 

Interest is the only thing you can write off as an expense for each payment, which shows on the P & L.

 

If you have an external accountant doing your T2 taxes for you, then once a year they will create a depreciation entry which will lower the amount of your Vehicle Fixed Asset account and increase a Depreciation expense account, the first showing on the Balance Sheet, and the second showing on the P & L.

 

Again, this is all moot unless you are an incorporated company.  Hope this helps!

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