Record loan payments for a fixed asset
If you buy a fixed asset and you finance it with a loan or installment plan, you must record it in your accounts. You can record the original purchase by posting a journal. By doing this, you can include any deposits and fees at the same time as the purchase. To help you keep track of how much you have left to pay, you can also record your monthly repayments and any interest charged.
Loan ledger accounts
Before you record the loan, you must create additional ledger accounts.
To create a ledger account
- Click Settings, Business settings.
- Under Financial Settings, click Chart of Accounts.
- Click New Ledger Account.
We recommend using the following accounts:
Name Account number Category Loan or Installment Plan 2300 Checking liability Licenses 7301 Expenses Equipment lease and rental* 7302 Expenses Installment plan interest 7901 Expenses *You only need this ledger account for a car lease.
Note: If you're already using the account numbers above for something else, you can use a different ones. It doesn't matter which account numbers you use because the category determines where the values appear on your reports.
- Complete the information as required, and then click Save.
To record the loan without a trade in
As an example:
- You buy a car for $20,000.
- You pay a vehicle registration fee of $250, a title fee of $100, an emissions testing fee of $75, and a documentation fee of $50, for a total of $20,475.
- You pay a deposit of $1,000.
- Go to Adjustments, Journals, and click New Journal.
- Enter the date and a reference for the journal. Enter a description if needed.
- Enter the relevant information to record the loan, for example:
Ledger Account * Details Debit Credit Property and Equipment (1500) Net value of new asset 20,000.00 0.00 Sales Tax Payable (2310) Tax on new vehicle 2,000.00 0.00 Licenses (7301) Registration, title, testing, and documentation fees for new vehicle 475.00 0.00 Checking (1010) Bank deposit paid 0.00 1,000.00 Loan or Installment Plan (2300) Total purchase price less the deposit 0.00 21,475.00 - Click Save.
To record the installment plan with a trade in
When you trade in an asset, you need to record the disposal of the old asset and move any depreciation you've recorded to your Other Income ledger account. This clears the value from your asset and depreciation ledger accounts. You can then record the purchase of the asset and reduce your installment plan liability by the amount of the asset you've part traded in.
For example:
- You have an car that originally cost $15,000 and has depreciated by $5,000.
- You buy a new car for $25,000, including tax.
- You part exchange your old car for $7,500
- In addition to this, you pay a vehicle registration fee of $250, a title fee of $100, an emissions testing fee of $75, documentation fees of $50, giving a total of $25,475.
- You pay a deposit of $2,000.
- Go to Adjustments, Journals, and click New Journal.
- Enter the date and a reference for the journal. Enter a description if needed.
- Enter the relevant information to record the disposal of the old asset and clear your depreciation, for example:
Ledger Account * Details Debit Credit Property and Equipment (1500) Disposal of old asset 0.00 7,500.00 Other Income (4300) Disposal of old asset 6,000.00 0.00 Accum. Depreciation - Prop&Eqt (1900) Disposal of old asset 5,000.00 0.00 Other Income (4300) Disposal of old asset 0.00 5,000.00 - Enter the additional information to record the installment plan, for example:
Ledger Account * Details Debit Credit Property and Equipment (1500) Net value of new asset 25,000.00 0.00 Select this check box Sales Tax Payable (2310) Tax on new vehicle 2000.00 0.00 Select this check box Licences (7301) Registration, title, testing, and documentation fees for new vehicle 475.00 0.00 Checking (1020) Bank deposit paid 0.00 2000.00 Other Income (4300) Part exchange value 0.00 5000.00 Loan or Installment Plan(2300) Total purchase price less the deposit and part exchange 0.00 20475.00 - Click Save.
To post the monthly installment payments
Each time you make a installment repayment, you need to post another payment. You should show the repayment and interest values separately.
For example, your monthly repayments are $300. You need to show $250 of this is a repayment and $50 is interest.
- Go to Banking and click the applicable bank account.
- On the New Entry menu, click Expense/Payment.
- On the Other Payment tab, verify that the correct bank is selected.
- Enter the date of the repayment, and a reference if needed.
- Enter the full amount of the repayment including the interest, for example 300.00.
- Enter the required information to record the repayment and interest on separate item lines, for example:
Ledger Account Details Total Loan or Installment Plan(2300) Loan or Installment Plan repayment 250.00 Installment plan interest (7901) Loan or Installment Plan interest charged 50.00 - Click Save.
To save time, once you've created the first payment, you can set this up as a recurring entry.