New to accounts!! We have bought a new company van, paid 30% upfront to the Garage and the remainder will be paid in monthly installments to a Finance Company, how to I account for this on Sage?
Step 1 - Credit Bank Debit Fixed Assets Motor Vehicles (Payment from Bank in Sage)
Step 2 - Journal Balance of Van.....Dr Fixed Assets Motor Vehicles and choose an appropriate account for the finance.....'Other Creditors' will do the trick.
Later on.........
Step3 - Work out of there is a finance charge. For example, if the balance is £7,000 and you are paying back 10 x 770.....then the finance element would be £70/Mth.
Step 4 - Assuming there IS a finance charge, each time you make a payment, Debit (or simply Make Payment in Sage) the capital amount to other creditors and debit the amount to an appropriate P&L account (7905 Credit Charges should be there).
Have a read of a previous post by Shaun. He tells us that the method suggested by Rachael contravenes FRS18 Accounting Principles and FRS15 Tangible Fixed Assets and SSAP21 Leases and HP Contracts. (his words, not mine)
You can read it all here: http://www.book-keepers.org.uk/t34120913/company-van-purchased-on-finance/
Say the van is £10k + VAT ie £12k and you are paying it up over 10 months with 10% interest.
The figures are £10k net and £2k VAT (at 20% VAT rate). Total £12k. Upfront payment is 30% of £12k = £3,600 balance financed is £8,400 (£12k - £3,600) with interest of £840 (10% of £8,400).
Assume that you allocated the payments on finance and the interest on a straight line basis over 10 months ie £840 per month capital and £84 interest or a total payment of £924 per month (£840 + £84). As your deposit of £3600 covers the VAT you can reclaim the VAT at the start so the journals to record as follows
Deposit
Dr Motor Vehicle 0050 £10k
Dr Purchase VAT 2201 £2k
Cr HP liability 2310 £8,400
Cr Bank 1200 £3,600
Monthly Payments over 10 months
Dr HP interest 7904 £84
Dr HP liability 2310 £840
Cr Bank 1200 £924
At the end of the 10 months you will have £nil in the HP liabilty N/C 2310 and will have paid out £12,840 being £3600 deposit and 10 payments of £8400. You will also have charged £840 to HP Interest N/C 7904 being a charge to the P&L ac. So total journals at end of the 10 months will be
