Highway Tractor Owner Operator

by Jacqueline
(Moncton, NB Canada)

We have a lease to own agreement with our carrier for whom we haul freight on a highway tractor. According to CRA we claim the lease payment as an operating expense.

I am using QuickBooks.

I realize the expense account has to be debited, which I can do when I enter the statement from my carrier.

My question is - Do I record the total of the lease as a liability with the other side of the entry as an asset?

If so, then I assume that I must also post reducing entries (debits) to the liability account ... but what do I credit??? the asset account???

Thank You

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Hi Jacqueline,

This is one of those confusing accounting topics that can easily muddle people up. Is your lease an expense, an asset or a liability?

Take a look at my chat on capital leases vs operating leases.

Undr GAAP, there are two types of leases - an operating lease and a capital lease.

The rules for determining if a lease is capitalized are generally related to who has the risks and rewards of ownership.

If you treat your lease as an operating lease, your highway tractor will not be recognized on your balance sheet as an asset and perhaps a liability until you purchase it at the end of the lease. Your debt is treated "off the books" so to speak, but is usually disclosed in the financial notes section of a set of financial statements.

If your lease is classified as a capital lease, then your highway tractor is recognized on your balance sheet as an asset and liability at the beginning of the lease.

For tax purposes, it is my understanding that there is no distinction between a capital lease and an operating lease which is why CRA is telling you to treat it as an operating lease.

As most sole proprietors prepare their books to enable them to complete their tax return, it is acceptable to prepare your books on a tax basis rather than on a GAAP basis.

So follow the first link above and you will find the bookkeeping entry you need under Operating Leases about mid-way down the page.

I'm just curious, what is a highway tractor? Is it like a flat deck?

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.

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