Initial entry for car purchase
My wife started a small house-cleaning business in partership with our daughter. Annoyed at the hassles of trying to use our much-in-demand personal vehicle for her business, she financed a new car strictly for the business; the car and insurance payments come directly from the business chequing account. Now she needs to set up her books to reflect this. How do we enter the value of the car and what is deductible and what is not? Is the total value a capital acquisition? We are still setting up her chart of accounts; we need to get this sorted out ASAP as tax season is here.
Partnerships have slightly different accounting than sole proprietorships. Each partner will need their own set of capital accounts as the income from the business flows through to the partners. Any money your wife or daughter withdraws from the business is not considered a business expense. These withdrawals will be recorded as draws in the capital accounts section for each partner.
It is very important that a written partnership agreement be in place which explaining how the profits and/or losses will be allocated. Assuming that each partner is not incorporated, their share of profits is reported and allocated on form T2125 Statement of Business or Professional Income.
A good way to set up your chart of accounts is to look at the tax form T2125 ... then feel free to modify it slightly (using sub-accounts) for information you feel you need to manage the business.
Vehicle Expenses are reported on Line 9281 of form T2125 for sole proprietorships ... however Line 9943 Other amounts deductible from your share of net partnership income (loss) is where partnerships report motor vehicle expenses.
Only the business portion of vehicle usage is tax deductible. If the vehicle is used 90% or more for business purposes, then the partnership can claim 100% of it's input tax credits ... but I would recommend you still keep an auto log to back up your tax deduction should you ever get audited.
The bookkeeping entry for the purchase of the vehicle is found in the article Common Bookkeeping Entries.
You will want to include a contra account on your balance sheet for Accumulated Amortization and an expense account on your income statement for Amortization Expense.
If you follow all the links in this posting, I think you will have the information you need to set up your books. Be aware that some of the rules may be slightly different for a partnership as explained above.
I hope this helps. If you have any more questions, please feel free to post back in the comments section below.