Car Expenses and Personal Use Journal Entry in QBO

Hello everyone. Today I want to show you how to set up your chart of accounts to reflect car or vehicle expenses. And then I would like to show you how to reclassify the personal portion of the car expenses. The first thing that we are going to do is to go to the chart of accounts. You can click over here on the left hand side.

And you can check to see if car expenses has already been set up. Perhaps you set it up or is automatically part of the chart of accounts the QuickBooks Online set up. If it's not here then well, you can just set it up from scratch. I currently do not have car expenses so I'm going to set up car expenses and then subs sub accounts to reflect the different types of car expenses that I have. So let us click on new.

And first we are just going to simply set up car expenses or you can call it vehicle expenses, whatever you prefer. QuickBooks has it as auto would be auto and that is the term that you can use. I am going to call it car expenses because that is pretty straightforward to me. But remember this is a personal preference. So I will click on save and new.

So I have my master account set up but now I want to set up some sub accounts so that I can track individual components of car expenses like gas, repairs, insurance, license and registration. And I want to do this because I want to be able to get some insight into how much I'm spending on each category. And also this is necessary for the T2125. If you are an unincorporated sole proprietorship, self employed, this is required on the car expenses form. You have to break it down and so you want to make this process as easy as possible. So let's create these other accounts. The next account that we are going to create is still all the detail types will go under auto but we're just going to call them.

Something descriptive. So we are going to have a gas count and this is going to be a subaccount of car expenses which we have already set up. And we're going to click on save and new. I'll leave the default tax code empty for now. Although it for example you generally on gas you do pay GST HST and if you're in Quebec you also pay qst. So let's assume that we're in Ontario and I am going to make this the default tax code. But pay attention because it doesn't always apply especially if you're traveling out of town or to the us. So let's click on save and new the next thing that I want to set up is.

Insurance.

And again I'm going to select car expenses insurance. There is actually no GST or HST or QST on insurance. It does have a special sort of tax amount, but this is not a claimable tax. So you can pretty much always use exempt for insurance. Save and new. Next thing is going to be repairs. Again, a sub account of car expenses. And more often than not you will have, assuming you're doing most of your repairs in Ontario, you will have HST in Ontario. Click on save and new.

Let's type it nicer. That's registration.

Sub account car expenses. Generally no tax on this. So let us click on save and you. And then finally a common category for car expenses is parking. And we are also going to make this a sub account. Car expenses. It depends, but parking does usually include sales tax. Again, if you are in Ontario, if you are in a different country or potentially different province, you want to watch out for this. So we're going to save and close this. There may be other expenses, but this is where you would go in and enter them. So I'm going to click on save and close. Close. And now let's just enter a transaction for car expenses by going to plus new and we will go to expense because I want to show you what it looks like on the profit and loss account. Let's assume this went through the bank account.

And you reimburse yourself for a bunch of car expenses on today basically. And so let us type in the categories. So let's say we had $125 of gas. Chances are you're going to have a total gas bill. So let's put inclusive of tax here. Now we want to add repairs and you have several repairs account but we can find the repairs that relate to car expenses because it actually says here sub account of car E. So we know that's car expenses. And let's say we spent $375 including HST.

Let's say on our insurance we spent another $450 for quarterly insurance payments. This is exempt. It automatically reflects here.

And finally we are going to show our license and registration of $225. This is also exempt.

So that is basically the entry. We spent a total of this amount and we can make a checkout to ourselves and pay ourselves directly through through our business bank account, which hopefully you have let us save and close this.

And now if we go to reports.

And we go to the profit and loss report.

And really I want.

This fiscal year to date because we're going to include today's date. So if we run the report, you can see that our car expenses show up here exactly as entered. And you will be entering this on an ongoing basis. If you put the car expenses on your business account and you have connected to QuickBooks Online, they will be downloaded and you can simply add allocate it to the correct account. The benefit again of this is you can see the breakdown and this is going to be very easily Transcribed onto your T2125. If you are a corporation, you can also use this method. Again, it gives you insight into the breakdown of your car expenses. But in a corporation on the giphy, you really only enter the total car expenses. The breakdown isn't to Ashley. No. So let's assume these are our total car expenses for the year. And we have done our kilometer calculation. We have taken our total kilometers that we traveled during the year and we took our business kilometers for the year. And we have determined that that percentage is 75% traveled for business. That means 25% of these expenses are actually personal. A Note for the T2125, you put 100% of the expense and you record the kilometers and it does a calculation for you. However, I want my books to be accurate on the personal versus business portion. So I want to reflect how much of this is personal. The way to do that is really quite simple. And in this case I'm going to use a journal entry. It is important to note which of these expenses has GSTHST on them and which don't. So we know that gas and repairs are subject to hst. Insurance and license registration are not. If you want to actually fly that out, you can click on this total here and you can click on the gear and you can see the exact amount of the taxes. So we have 5,939 in tax, but we can only claim 75% of this. This is a sales tax, the GSTHST. The other 25% also has to be be allocated to personal. And it's important to do this. And this amount is very small, but as it gets larger, the chances of it being problematic in case of an audit are higher. So you do want to treat this accurately. So what we want to do is create a journal entry entry to reflect the personal portion. And the journal entry would be quite straightforward except we have this complexity of.

The GSTHST that only applies on two of the four expenses that we have reflected here. We have to make sure that we include that properly this might take some calculation. You can always export this to Excel and do the calculation there if you have more transactions, which you might. And so it's a good idea to do it that way.

So I am going to click on new Open the journal entry in a new tab so I can refer back to this.

I'm going to make the date of the journal entry December 31st. And what I want is to create a new account.

Which is essentially the personal portion of the automobile expenses. This remains the same. We're going to call this personal portion.

And this is a sub account of car expenses. So let's just do that. You'll see I already have a personal portion here. So. But this is just sort of showing you how to do it. The default code we're going to leave blank because sometimes it's going to apply, sometimes it's not. You would click on save and close and then it would take you right back to this interface. So let's click on personal portion.

And our total car expenses were 1131 86. However, because we are going to be adding GSTHST on two of these ones that have them here, we have to make sure there's actually two separate line items in the journal entry. So the first one we're going to add up 125 and 331.86.

I can simply press tab. You can do this calculation directly here. I love to use the QuickBooks here. It saves me a lot of time. But if you prefer you can also do it in a calculator or in an Excel sheet. So Now I know other 45686 25% is personal. So let's click on multiplied by 25%.

And so 114.22.

Is a personal portion of the expenses that have HST on it. And you'll see how it's different here. Now here we are going to choose sales tax as we claimed or this is included in our sales tax report. So we have to actually take it out.

And so we are going to choose HST Ontario purchases and sorry, this is actually a credit because we are reducing the expense. So you can do a minus here, but we are going to just put it in the credit column. That's better. And here reflect parcel put portion of car expenses with hst. Now on the second line we're still the exact same account, but this time it doesn't have HST on it. So here we have to choose exempt and similarly we have 450 and 225. So let's just add that up.

And we're going to say without HS. So here it's only 25% of these expenses that are actually personal. So let's make sure we do that. And the sales tax code here is exempt purchases. And now we have the personal portion which is $282.97 and $1,485 of the tax is non claimable for a total of $297.82. Now if you are a sole proprietor or an unincorporated business, this would simply go to owner's equity.

And you would just. It will almost certainly already be entered into your accounts. If not, you would simply go to add new and you would go to equity and you would find your owner's equity and then just add it from there. This, the Sherlock Holmes Detective Agency is quite corporation. So this is actually going to go to the shareholder loan because it has to be repaid by the shareholder. And this is also really, this is out of scope because it doesn't apply at all. So we're going to choose out of scope. And you'll see QuickBooks automatically takes the total of this amount and enters it. So we don't really have to calculate it. So that's basically the entry we're going to save and close this.

And now if we go back to our reports.

We go back to the report summary, you'll see the personal portion shows up here. And this is actually our correct car expenses. So I hope this was helpful. You might have questions, don't hesitate to leave that in the comment section and I'm happy to answer them. If you like this video, please subscribe. It would be very, very helpful. And have a great day. I'll see you soon.