Purchase of Fixed Asset with Loan

Software: QuickBooks accounting software

Usually, I preferred creating three accounts for each type of Fixed Asset. One will be the main account and two sub-accounts underneath for cost of Fixed Asset account and accumulated depreciation account.

Example:

Motor Vehicle (main account)

Cost – Motor Vehicle (Sub-account)

Dep Acc – Motor Vehicle (Sub-account)

When purchased a Motor Vehicle, Cost at S$100,000.00 with 5 years straight-line depreciation, from ABC Motor Company. The supplier of my Bill will be “ABC Motor Company” and Account used in the bill will be the Cost – Motor Vehicle account. The double entry for this transaction will be debiting Cost – Motor Vehicle account (Balance Sheet) and crediting Accounts Payable (Balance sheet) for $100,000.00.


In Balance Sheet:

Motor Vehicle:

Cost – Motor Vehicle: 100,000.00

Dep Acc – Motor Vehicle (Sub-account) 0.00

Total Motor Vehicle: 100,000.00

Assuming if I take a loan from Bank of $70,000.00 and the remaining will be paid by cheque, I will first create a cheque payment (using Write Cheque) of $30,000.00 to ABC Motor Company. The double entry for this transaction will be debit Accounts Payable and credit Bank for $30,000.00.

Next, I will pass a journal to debit Accounts Payable account and credit Loan principal account (Liability account in Balance Sheet) for $70,000.00.

In Balance Sheet:

Loan from Bank

Loan Principal: 70,000.00

Loan Repayment: 0.00

Total Loan from Bank: 70,000.00

Now, amount owing to ABC Motor Company will be $0.00.

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