Sunday, June 6, 2021

Add a fixed asset loan and interest payments in quickbooks

In this tutorial, we will see whether how we can record a fixed asset (Delivery truck) loan and interest payments in QuickBooks desktop.

 


 

Anyhow, let’s suppose, we took a delivery truck loan “which is a fixed asset loan” and we need to record the loan and interest payments and I am showing you three different ways of recording truck loan.

Tutorial Instructions:

 

The first one is by creating a full general journal entry

Now let’s record the loan by using the first method which is by creating full general journal entry. Now, the first method is by creating full general journal entry.

First, have an idea of taking truck loan, well you took a loan and paid some down payment and you got a truck.

So to create a general journal entry, click on the company menu and select “Make General Journal entries” option and change the date accordingly, now click on the account field and select a vehicle account, and if you don’t have one, just click on “Add new” and create one and then write the cost of the delivery truck,

On the other hand, you took a loan which will be paid back in years so you need to create a long-term liability loan account if you haven’t set it up already. Since I haven’t set it up yet, i am going to create one by clicking on “Add new” and selecting long term liability loan type, I am just naming it “Auto loan”, its just a matter of preference what you name it and then click on “save and close” to create the account, and write the amount of the loan, remember, you pay something as down-payment or first installment at the time of taking loan so you need to record that too. Let’s suppose the first installment is of 20000 which you paid by writing a check at the spot.

Now, you took a long-term loan, and paid first installment which was 20000, and got a delivery truck costing 250,000. Now write some memo if you want or click on “Save and close” to record the journal entry, Now go to the chart of accounts and here you can see the long-term liability account, and delivery truck account with their respective amounts and when you will double click on the concerned bank account, you will see the payment you paid as first installment or down-payment.

Now go to the balance sheet and here you can see the delivery truck and the “auto loan” appeared in the balance sheet with their respective amounts.

Second method:

Now let’s use the second way of recording a fixed asset loan which is separately writing a check for down-payment

First let me delete the general journal entry to reverse the effect which mean the loan amount will no longer appear in the books except the accounts because they are just accounts.

Now create a journal entry with the full amount of the delivery truck loan you took by selecting the accounts we created in the previous example, you sure can create new ones if you want, I am just selecting them again to save time, and write a memo if you want or click on the “save and close” to record the entry,

Now, so far we have recorded an asset and a loan, and here you can see how they appear in the balance sheet, but we need to pay the first installment or down payment, so, to pay the first installment or down-payment, we will write a check.

Now select, “write checks” option under the “banking” menu and change the date and then add your vendor, and if you don’t have one, just create one right away and then write the first instalment or down-payment amount, which is 20000 and under expense tab, select the “auto loan” account because it’s the first instalment or down payment which supposed to decrease the loan amount. Now write the memo if you want or just click on save and close to record the transaction.

Now lets go to the balance sheet, and here you can see the auto loan amount has decreased accordingly.

Third Method

Now let’s use the third way of recording a fixed asset loan which is writing a check.

First let me delete the check I wrote for down payment and the general journal entry to reverse the effect and here you can see, its no longer showing in the balance sheet again.

Now select “write checks” option under the “Banking” menu and select your concerned bank account, and then select your vendor, and change the check number, and write the first instalment or down-payment amount and then click on “Items” tab and select “Delivery truck” and if you haven’t set it up before then just click on “Add new” and create one and in the expense tab, select the auto loan account, we created earlier and we need to add “negative amount” which becomes negative 230000 after deducting the down payment which is 20000.

Now what will happen behind the scene is that the negative auto loan amount will show up as liability and delivery truck will show up as fixed asset with their respective amounts. And the concerned bank account will be reduced by the first installment or down-payment amount…. which reduces the actual loan amount from 250000 to 230000.

Now write some memo if you want or click on save and close to record the transaction and when you go to the fixed asset items list, the delivery truck is showing up in our fixed asset items list because, instead of an expense, we recorded it as item while writing a check and when you go to the balance sheet, you can see that the delivery truck and the auto loan amounts showing up respectively and so in the chart of accounts.

And here in the chart of accounts, you definitely have observed that I haven’t created the delivery truck cost and accumulated depreciation sub-accounts yet, which you will create when you will get the ownership of the significant half of the asset.

Well, so far, we have talked about 3 ways of recording a financed asset and when you get a loan, you need to pay interest on that loan which includes some portion of the actual loan amount which will be paid off on the agreed time.

Well different terms and conditions are used to pay back the loan amount, it may be declining or fixed interest payment for the agreed period of time.

Let’s talk about a bit for both scenarios,

First the Declining interest base scenario,

Here, we got a loan of 250,000 for 5 years and made down-payment of 20000, which left the remaining loan balance of 230,000, On this loan payment, 20% is the annual interest rate, which we can convert into monthly rate by dividing it by 12, which becomes, 1.67% well, just ignore the 15%, I forgot to change it to 20% and agreed monthly payment is 6093.60 scents.

Now, create your table to calculate the value.

First, the number of installments will be 60, because we took the loan for five years and there are 12 months in a year, so just multiply the years by months to get your number of installments.

Then write the installment date which will be at the end of the month, now write your monthly agreed payment which is 6093.6, and then write the formula to calculate the monthly interest which is monthly rate * by Loan balance and lock the monthly rate cell because we don’t want it to move with the formula and I am just using another formula to round it to two values, now, find the amount of the loan that will be deducted from principle loan amount by subtracting the interest amount form the monthly payment, now, just deduct the loan payment from the loan balance to track the loan amount properly.

Now select the cells and double click on the cell handle to drag the formula down and here you can see that the monthly interest rate will decrease with the passage of time and at the end of the last installment, the total loan payment will be paid off.

Second Fixed Interest Base Scenario

Now, let’s see the fixed base interest scenario, which means you will pay a fixed amount of interest every month till the last installment,

Now, we know that the loan has been taken for 5 years’ which becomes 60 installments, and we agreed on 9583.3 monthly payment and in this monthly payment, there will be fixed 60% interest and 40% will be loan deduction.

So, write your monthly payment which is 9583.3 and then take 60% of it for the interest payment, which becomes, 5749.98 and then find the 40% loan deduction amount and then subtract it form the loan balance to track the loan payments and then select the cells and send the formula down by double clicking on the cell handle, Remember, since it’s the fixed base interest scenario, the monthly installment, interest and loan deduction payment will remain the same till the last installment, but actual loan amount will keep decreasing after every installments and here you can see that on the 60th instalment, the loan amount has gone down to zero.

Anyhow, whatever the scenario may be, if you can’t calculate the interest and principle monthly loan instalment, just ask your Accountant or CPA who will help you will that and let’s say that your CPA or account has provided you with the monthly instalments and you need to record it into your books.

So to record the monthly instalment, select “write checks” under the “banking” menu, and then select your concerned bank account, and then the company you took the delivery truck loan from, and write the monthly installment amount and then click on the “Expense” tab, and select the “Auto Loan” account we created earlier, and the interest expense account and if you don’t find one in your charts of accounts, just create one by selecting “Add New” and then write the concerned amounts of interest and Loan principle and then write some memo and change the date and then click on save and close to record the transaction,

And here you can see that the auto loan amount has reduced by 2260.27 and when you open profit and loss statement, you will see the interest expense which has been paid on loan and when you will compare the loan amount with the excel table, it shows the same amount and that’s exactly what we wanted and this is how you can record a financed asset and concerning monthly payments by breaking it down to interest and loan payments and I hope this will be helpful for someone out there and thanks for watching.

 

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