Posting Payment to Vehicle Loan

by Jan
(Thunder Bay, ON)

I used QuickBooks Pro 2010 and could not find any answer from the community. Appreciate if anyone can help.

The company just purchased a vehicle worth $35,710.50 with a $1,000 down payment. HST is $4,830.61 and Interest $8,982.57 for loan of $39,541.11.

I recorded the intial purchase as follows:

DR Fixed Assets-Truck $34710.50 ($35710.50 less $1000)

DR HST Input tax credit $4830.61

DR Asset - Interest Deferred $8982.57

CR Liability - Truck Loan $48,523.68




Now I need to make a payment of $673.74 (including hst and interest) to the finance company. I issued the cheque as follows:

Under Account-Liability, Truck Loan $482.09 (principal)

Under HST $67.09 (which I derive from $4,830.61 divide by 72 payments)

Under Asset - Interest Deferred $124.76 ($8982.67 divide by 72 payments)




When I post the cheque - the truck loan account decreases by $482.09 - which I believe IS right but the HST and interest deferred account increases - which I believe IS wrong.

Appreciate if someone can give guidance.

Thanks
Jan - Thunder Bay, ON

Hey Jan,

I think it's great that you think your entry is wrong. It means you are thinking your way through the debits and credits. Awesome!

I will assume you coded your deposit to the Fixed Assets-Truck account.

I'm not going to address your HST calculation that is not calculating at 13% of $36,710.50. Recheck your purchase documents for the details.

I talk about recording the Canadian sales tax component of a (leased) vehicle in Common Bookkeeping Entries and Journal Entry Examples. The concept and/or type of questions you need to ask when preparing your bookkeeping entries would be similar for the financing of a purchased vehicle. As your loan payment includes HST, are you sure you are not making a lease payment?

Next, take a look at how you booked your HST. Do you think you are claiming the ITC twice?

After you've looked at that, you need to know that there are special rules to ITCs on a vehicle. The rules are different for sole proprietors versus corporations.

You can find the bookkeeping entry for a loan payment in my article on Confused About the Balance Sheet.

You can find the bookkeeping entry for purchase of an asset in my article on Common Bookkeeping Entries and Journal Entry Examples.

Jan, follow the links and see if you feel your questions pertaining to your situation are answered. If not, post back here for further clarification.

Again, I can't tell you how great it is that you are actually thinking your way through the bookkeeping entries.

A final note. Remember to keep all the documents pertaining to the purchase and financing for your tax accountant. They will need the information to do your year-end and tax preparation correctly.







P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.