Sole Proprietor - Trailer Lease Buyout

by Peggy
(Canada)

My client is a sole proprietor. I took over his bookkeeping at the beginning of this year. When I took over, he was leasing a trailer and the payments were posted as an expenses (with the sales tax also split out and posted). I continued that procedure.

He has now paid out the lease and owns the trailer. Let's say the original purchase price of the trailer was $6,000.00 (still waiting for the paperwork to show the breakdown and when he purchased it etc).

Let's also say for this example the buyout amount was $4,500.00 before sales tax.

I'm assuming I now need to show this trailer as an asset. I need some help in posting this properly. Is the total asset amount going to be $6,000.00 or $4,500.00?

I would appreciate some help. Thank you.

Hi Peggy,

I changed your numbers a bit from what you posted.

When booking something like this, think about what has already been expensed. If you included the expensed portions paid when booking the capital asset, do you think you would be double booking?

Treat each transaction separately. The lease payments are done and in the past. What you are trying to book is the purchase of the trailer, so only book the amounts associated with purchasing to own.

As the lease was booked as an operating lease, you don't have to worry about any balance sheet accounts / entries pertaining to the lease.

I show the basic journal entry for the purchase of an asset in not so routine bookkeeping entries. Hope this helps.