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Car finance loan and GL

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smileykylie1982
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Car finance loan and GL

Hi,

 

I recently purchased a car for my business on finance and after searching around I believe I have it set up correctly in MYOB Essentials.

 

1. I created a liabililty for the finance amount

2. I created a fixed asset account

3. I performed a GL entry to debit the liability and credit the fixed asset

 

this seemed to have the desired effect

 

4. repayments are a withdrawl on my bank feed and I allocate these to the fixed asset account.

 

Does that seem correct or have I got it backwards?

 

Thanks,

Kylie.

 

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smileykylie1982
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Re: Car finance loan and GL

I did have this backwards.

It should be like below, otherwise the correct value of the car asset, minus finance liability, is not reflected in business equity correctly.

 

1. create a fixed asset account for the total value of the car.

2. create a liability for the total value of the loan (hopefully less than the total value of the car!)

3. create a GL entry that debits the entire amount from the liability account and credits it to the fixed asset account

4. in the same GL entry, add owners equity for trade in/deposits as a credit and a debit to cover the difference between the loan amount and the value of the car.

5. Repayments are applied to the liability account which will show a (growing) negative value in chart of accounts. This is fine as far as I can tell.

 

6. Still working on how to correctly account for depreciation and interest but it should slot in there somewhere... I guess depreciation is a debit from the fixed asset and a credit to depreciation account, and interest is kind of splitting the total repayment cash withdrawl from my business bank account into the liability repayment, minus some interest component to go into a separate interest account.

 

This way, the remaining value of the car (deposit + trade in - depreciation) is correctly reflected in business equity. Before this my business was showing negative equity and that didn't seem correct because I have shiny a new business car now, and the loan amount was a fair bit less than the cost!

 

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