recording a fixed asset and payment
Recording the Purchase of a Fixed Asset
Overview of Fixed Asset Purchase
Fixed assets are recorded in an asset account on the balance sheet.
They are not recorded as an expense.
Recording the Purchase Transaction
Use the expense transaction to record the purchase.
Access the expense transaction via:
"Record Expense" button
Alternatively, use the "+ Create" button and select "Expense."
Transaction Data
All necessary data for the transaction is found in the transaction data worksheet under the "purchase fixed asset" tab.
Details of Purchase:
Total Equipment Purchase Price: $20,000.00
Cash Down Payment: $7,804.91
Loan for Remaining Balance: $12,195.09
Loan Interest Rate: 6%
Loan Term: 2 years
Creating Vendor Account
Vendor Name: Printing Equipment Inc.
Save the vendor after creation.
Transaction Date
Set date as August 1.
Bank Account for Down Payment
Use the appropriate bank account for making the down payment.
Creating Fixed Asset Category
Create an asset category called "Equipment" in the chart of accounts.
Account Type: Fixed Assets
Detail Type: Machinery and Equipment.
Description of Purchase
Description: "Magnet Printing Equipment"
Total Purchase Price: $20,000.00.
Recording the Expense
Direct recording of $20,000.00 would incorrectly reduce the bank account.
Record cash down payment only:
Down payment: $7,804.91.
Recording the Loan Payable
Create a Loan Payable account for the remaining balance.
Suggestion to name: "First Financial Loan Payable" (bank name).
Account Type: Other Current Liability
Detail Type: Loan Payable
Loan Liability Record
Amount of loan recorded as negative: $12,195.09 (to create a credit balance for the liability).
Memo: "Purchase of Magnet Printing Equipment; Down Payment of $7,804.91 and Loan of $12,195.09."
Alternative Recording Method: Journal Entry
Instead of using an expense transaction, a journal entry can achieve the same results.
Journal Entry Details:
Date: August 1.
Debit to Equipment account: $20,000.00
Credit to First Financial Loan Payable: $12,195.09
Credit to Bank Account for the down payment: $7,804.91.
Verification of Transactions
Transaction journal reveals the exact journal entry behind the expense transaction.
Both methods (expense and journal entry) reflect identical underlying transactions.
Importance of Utilizing QBO’s Workflow
It's advisable to utilize established workflows within QuickBooks Online (QBO) instead of defaulting to journal entries.
Only employ journal entries when other options don’t exist (e.g., payroll).
Recording Loan Payments
Equipment Loan Payment Overview
Review transaction data for recording loan payments.
Payment performed on August 22, amounting to $5.49.
Loan Details for Amortization
Loan specifics:
Amount: $12,195.09
Interest Rate: 6%
Term: 2 years
An amortization calculator can assist in determining principal and interest split.
Recording the Loan Payment Transaction
Create an expense transaction to log the loan payment.
Vendor: First Financial (loan holder).
Payment date: August 22.
Identifying Payment Source
Payment from the bank account.
Recording Principal Reduction
Determine amount for principal reduction using an amortization calculator.
Principal Payment Amount: $4.79 (rounded from specific calculation).
Interest Payment: $60.98
Total Payment: $5.49.
Account Creation for Interest Expense
Create an Interest Expense account (if not pre-existing):
Account Type: Expense
Detail Type: Interest Paid.
Final Details and Save
Record principal payment of $4.79 and interest payment of $60.98.
Ensure the total matches the expected payment of $5.49.
Optionally include a memo for clarity, if necessary.
Final Steps
Save the loan payment transaction once verified.