• Home
  • Services
    • Accounting Services
    • Bookkeeping
    • Payroll
    • Advisory Services
    • Consulting for QuickBooks®
    • Xero Cloud Accounting
    • Cloud Accounting
  • Products
    • QuickBooks Online
    • QuickBooks Online Advanced
    • QuickBooks Desktop
    • QuickBooks Enterprise Solutions
    • QuickBooks Point of Sale
    • QuickBooks Payments
  • Industries
    • Services
    • Construction
    • Medical and Health Care
    • Real Estate
    • Non Profit
    • Retail
    • Restaurant
    • Manufacturing
    • Wholesalers and Distributors
    • eCommerce
  • Resources
    • Resources
    • Mobile Accounting
  • Blog
  • Testimonials
  • About
    • About
    • Send Us Your Referrals
  • Contact
732-385-1030 | service@jlbookkeeping.com
April 25, 2019

Buying a Car or Truck for Your Business?

Josephine Licata Accounting, Bookkeeping Tips

When you purchase a new vehicle, you get the fun of riding around in a new car with the new car smell! Our job has just begun – to get your new asset recorded properly on your books. We thought it’d be fun to give you a behind-the-scenes sneak peek at our part. 

Sales Contract

The first thing we’ll ask you for is the sales contract.  It will give us the payment price of your car, and we’ll use that number to record your new asset on your balance sheet.  If you paid cash with no trade-in, the journal entry we’ll make is:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$25,500

Then we’ll decide on a depreciation method and book depreciation monthly or at year-end.

Debit: Depreciation Expense

$5,100

Credit: Accumulated Depreciation

$5,100

Trade-in

If you traded in a vehicle that is on your books, we’ll need to make an adjustment to your books. Effectively, your old car will be eliminated from your balance sheet. If this asset had a book value and it was not fully depreciated, the net value would be compared to the trade-in value and a gain or loss on the asset sale would be recorded on your income statement. 

Let’s say the balance sheet value of the three-year-old car you traded in was $10,000 and you got $8,000 on the trade-in. Here’s what we would record:

Debit: 2019 Toyota RAV4

$25,500

Debit: Accumulated Depreciation

$15,000

Debit: Loss on Sale of 2016 Car

$ 2,000

Credit: Old 2016 Toyota RAV4

$25,000

Credit: Cash

$17,500 ($25,500 – $8,000 trade-in)

We’d also start the depreciation for the new car.

New Car Loan 

Most often, a new car purchase will be financed, so we have a new liability to record too.  We’ll need to get a copy of the loan documents from you and an amortization schedule of the payments. Let’s say you made a ten percent down payment with no trade-in.  Here’s how that would look:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$2,550

Credit: Toyota Loan

$22,950

Then, each time you make a monthly payment, the amount will need to be split between principal and interest and those amounts will need to change each month.

Debit: Interest Expense

$390

Debit: Toyota Loan

$60

Credit: Cash

$450

We left out a few trade secrets just to keep it intriguing. There are a lot of other numbers on a car purchase: taxes, licenses, warranties, add-ons, fees, and more. Some of these can be directly expensed, while others need to be included in the value of the asset. So if you’re happy that we’ll take care of this for you, we’re happy to do so. 

Let us know if you purchase an asset this summer so we can get it booked right for you. 

Your New Hire Checklist How AI Is Changing Accounting

Related Posts

Accounting, Cool Tech Tools

Cool Tech Tools: Fathom

Accounting, Bookkeeping Tips, Business Tips

Get Organized with This 32-Item Year-End Close Checklist

Accounting, Bookkeeping Tips

Using Custom Fields in Your Accounting Software

Monthly Archives

Categories

  • Accounting (16)
  • Bookkeeping Tips (4)
  • Business Development (10)
  • Business Tips (31)
  • Cool Tech Tools (7)
  • Customer Service Tips (3)
  • Management Tips (6)
  • News (20)
  • Payroll Tips (1)
  • Profitability Tips (4)
  • Tax (2)
  • Time Management Tips (3)
  • Services
  • Products
  • Industries
  • Resources
  • Blog
  • Testimonials
  • About
  • Contact
Copyright © 2020 Sandra L. Leyva, Inc. | Site Design by Accelerator Websites

Contact Us

Bookkeeping Services, Payroll Services and Services for QuickBooks®

JL Bookkeeping LLC

732-385-1030 | service@jlbookkeeping.com

Manalapan, NJ

Client Portal Login

Intuit, QuickBooks, and QuickBooks ProAdvisor are registered trademarks of Intuit Inc. Used with permission under the QuickBooks ProAdvisor Agreement.