Answers · Bookkeeping
How to Record Equipment Financing
Purchased equipment or a vehicle is generally recorded at full acquisition cost; financing is a separate liability and the down payment only reduces cash.
How it works
The rule, and what it turns on.
Book depreciation and tax depreciation can differ. Tax recovery can involve MACRS, Section 179, bonus depreciation and vehicle limitations.
Example
Truck costs $80,000, $20,000 down, $60,000 financed: debit Vehicle $80,000; credit Cash $20,000; credit Loan $60,000.
Common mistakes
What we see go wrong, and what we do instead.
- Recording only the down payment as asset.
- Expensing loan principal.
A better approach
- Maintain fixed-asset and loan schedules separately.
Authority
Where this comes from, so you can check it.
IRC §§167, 168 and 179; Treas. Reg. §1.167(a)-1; IRS Publication 946; Form 4562 and instructions.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- How to Record the Purchase of a Business Vehicle
- How to Record a Down Payment on a Business Asset
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