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  #1  
Old 06-15-2011, 09:30 PM
Vartan Vartan is offline
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Join Date: May 2011
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Auto Loan & Car Purchase Entries

Hello,

Have been searching and reading through the forum and asking people for help for the past week trying to figure this out. Can't for the life of me get this right. Would appreciate any help.

So here is the situation.

The total amount of the vehicle was $50557.00. With tax and everything it came out to $57,302.68.

We wrote a check to the dealership for $40,000.00 and financed the rest.

We write the finance company a check for $700.00 every month. The minimum payment is only $599.71. The APR is 14.99%

I created a spreadsheet of the monthly interest and principal. The interest being $122.49 and the principal $477.21

I created three accounts.

1) "Vehicle fixed asset" - Automatically created depreciation and original cost sub accounts.

2) "Other Current Liabilities"

3) "Interest Expense Account"

Now, I believe everything has been created properly but I just don't know how all these things are supposed to relate and intertwine. Stuff like...

Who does each check get cut to?

The original check to the dealership? What should the chart of account be? To the vehicle asset account?

Does the vehicle fixed asset account need to have a starting original cost? Or will the check to the asset account take care of that? Do I need to create a journal entry from the current liability account crediting the vehicle account for the amount of the loan?

What should the opening balance of the other current liability account be? The amount of the loan?

Where in the good Lord's name does the interest expense account come into play?

Here's what I did...

Opened the vehicle asset account.

Entered the opening balance as -$57,302.68

Wrote a check for $40,000.00 to the dealership, with the vehicle account as the chart of accounts. This brought the vehicle account balance to -$17,302.68. Then from the liability account I created a journal entry for an increase of $17,302.68. The payee was the dealership and the chart of account was the vehicle asset. This brought the vehicle account to $0.00 and the liability account to $17,302.68

Then I wrote two checks from our bank account to the liability account. Bringing the account balance to $15,902.68

I did nothing with the interest account.

It's probably all wrong.


If someone could lay this out for me I would be so incredibly grateful. My mind has been swimming for the past week. If you need any more information please let me know.

Thank you,
Vartan
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  #2  
Old 06-16-2011, 02:30 AM
Joe Williams Joe Williams is offline
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You created the accounts correctly. Let us enter just what you did.

1. Enter a check for 40000.00 using account "Vehicle fixed asset: original cost". This will put the value of the asset account at a positive $40000.00.
2. You borrowed $17302.68 to finance the rest of the vehicle purchase, so enter a Journal Entry that Credits the "Vehicle Loan" (type Other Current Liabilities) and Debit the "Vehicle fixed asset: original cost" (type Fixed Asset) for 17302.68. The amount in the "Vehicle fixed asset: original cost" account should be $57,302.68 and the amount in "Vehicle Loan" should be $17302.68. This completes the input for the asset and loan.
3. When paying the loan, you can split the amount between "Vehicle Loan" liability account and "Interest Expense Account" expense account to match the principal and interest amounts.

An alternate method is to enter the full payment using just the loan account and when you get the yearly loan statement enter a journal entry to Credit the interest amount to toe loan account and Debit the amount to "Interest Expense Account"
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  #3  
Old 06-16-2011, 09:27 PM
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LauraD LauraD is offline
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Location: Rhode Island
Posts: 1,197
Just to clarify - you wrote:
Here's what I did...

Opened the vehicle asset account.

Entered the opening balance as -$57,302.68

You need to remove the opening balance entry here. Your asset balance will come from the actual transactions.

I hope this helps,

Laura D
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  #4  
Old 06-18-2011, 03:03 AM
Vartan Vartan is offline
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Join Date: May 2011
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Quote:
Originally Posted by Joe Williams View Post
You created the accounts correctly. Let us enter just what you did.

1. Enter a check for 40000.00 using account "Vehicle fixed asset: original cost". This will put the value of the asset account at a positive $40000.00.
2. You borrowed $17302.68 to finance the rest of the vehicle purchase, so enter a Journal Entry that Credits the "Vehicle Loan" (type Other Current Liabilities) and Debit the "Vehicle fixed asset: original cost" (type Fixed Asset) for 17302.68. The amount in the "Vehicle fixed asset: original cost" account should be $57,302.68 and the amount in "Vehicle Loan" should be $17302.68. This completes the input for the asset and loan.
3. When paying the loan, you can split the amount between "Vehicle Loan" liability account and "Interest Expense Account" expense account to match the principal and interest amounts.

An alternate method is to enter the full payment using just the loan account and when you get the yearly loan statement enter a journal entry to Credit the interest amount to toe loan account and Debit the amount to "Interest Expense Account"
Thank you so much Joe. You have no idea how much you've helped me out. I would rep you if I could.

Quote:
Originally Posted by LauraD View Post
Just to clarify - you wrote:
Here's what I did...

Opened the vehicle asset account.

Entered the opening balance as -$57,302.68

You need to remove the opening balance entry here. Your asset balance will come from the actual transactions.

I hope this helps,

Laura D
Already did. =] Thanks for the help.
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