Linda Artesani shows how to record a vehicle purchase in QuickBooks Online, explaining that a car loan is a liability, not an expense. She walks through capturing the loan amount, vehicle cost, trade-in value, fees, and registration in one journal entry, then attaching the purchase contract and receipts so your accountant can track the VIN and depreciation schedule.
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Hi there, Linda Artesani, Artesani Bookkeeping. I wanted to do a few short tutorials on how to enter some of the trickier transactions that you will find in— that happen in a lot of businesses and people kind of struggle with putting them in. And there are things I see on customer files all the time. One of the things I do see is when somebody purchases a vehicle, and I had this discussion with my husband this morning, He said he understands how someone could see it this way. They get a loan for a vehicle and they put it as an expense because it's money out of their pocket. They have to pay the loan, loan expense. And a loan is never an expense transaction. The interest piece of it is, but not the actual loan itself. The loan is a liability and you are borrowing the money. And then as you pay down the truck, you're— but usually paying a loan off which is an asset. In this case, I'm going to show you a contract for a truck. So let's go to that transaction now. So here's the contract itself, and here's the journal entry that corresponds to this. One of the things I love about QuickBooks Online is I can actually get this contract attached to the document itself. So now at the end of the year— this truck was purchased in the very beginning of the year, obviously it was a couple years ago— If I get this in the beginning of the year, I stick it in there, and when my accountant, who's got access to my file, he's not calling me. And I remember the old days, you had to make a file folder for the assets when you had to add to an asset so you had it ready for the CPA. Now he can look at this and see the vehicle, what type of vehicle, the VIN number, and he can calculate the breakdown of the depreciation on this vehicle right from QuickBooks. QuickBooks Online saves me phone calls and emails and handing files over. It's just wonderful. I go back to the old days and I know paper and pencil were great, but this is, it's just so much better. So here's the journal entry for this particular vehicle. This was a 2012 Ford, a used truck that was purchased. You can see the loan here, how it breaks out. The amount financed is $16,085.57. You'll see that on the loan. So I created this loan account. which I said before is a liability account, and I'm putting it in the loan, the balance of the loan in here on this initial transaction. So this is the total that I owe, and then obviously monthly you'll see reflected in each payment the loan principal payment and the interest payments. They had a trade-in. They took an old truck in and traded it in. So you see here the trade-in is right here on the books because the trade-in was something that's on our accounts as an asset, the truck. And we're removing or reducing the asset by taking out this older truck and turning it in, I needed to reduce the balance in the asset account. So it's always a debit when you increase the asset and a credit when you reduce the asset. So this is where this $1,500 would come into play. The value of the truck when he purchased it is on here as well. You'll see that he bought some gap truck insurance. He had some document fees that were part of this transaction as a whole, you'll see that there's a document fee. He has a service contract. So that's also, in this case, it was only 1 year. So, and because the contract was put into the books, this transaction was put in the books actually at the end of December when I entered it. This was a client that I had that I didn't have a chance to work with all year. So When I entered this transaction, it had been pretty much expensed at that point, the contract. Normally, that would also probably be an asset on your books that you've prepaid this powertrain service contract. So you're really prepaying for a possible service. So you might want to discuss that with your accountant or your CPA, but It can go in either place depending on how it was used and the timeframe that it was used. If it's a 1-year, 4-year, you're going to break it out by years and keep it up on the books and the balance sheet for the years that aren't used and then drop it in at the end of the year for the year that— the years that are used. We have registration is on here. You'll see registration down here. That applies to the registration category. He had some insurance he had to prepay for, so that's put on the books here. So it all has to total up, and the total transaction is this $17,000 transaction for this vehicle, and you can see here, here's the cash price for the, for the vehicle, $13,857.57, and that's also on the books. So you have to break out this transaction in pieces to show exactly what happened. The loan, and you have to be careful how you put this in, so this loan is actually including He was loaned the money to get this powertrain on the books as well, this insurance policy, the service contract. So that's how come the loan is a higher value than the actual truck itself. And it also includes the deposit, any deposit you would have to make, you could add that in here as well. If you already prepaid a down payment, you can put that in there too. So in this case, the down payment was the traded-in older vehicle, but it also may be where you would have the down payment just came out of the cash out of the books, and this would just show your bank account to show the cash that you took out, which would be a check, and you could apply it there as well. And then at the end of the day, I just download and drop in that receipt so that it shows on here. this entire transaction for the CPA. So, I hope that's helpful to you, that you can see how to generally enter a purchase of a vehicle, um, on your books in QuickBooks. If you have any questions or would like to see a future video, please reach out to me. I'm pretty responsive on Facebook and I'd love to help out. Thank you for watching. Bye now. www.sarahprevost.com
