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PS Cashbook

Setup loan accounts to finance an asset purchase

Summary

How do I setup all accounts associated with the purchase of an asset via a loan?

How do I enter the purchase of the asset via a loan into Cashbook?

How do I add the asset to the Fixed Asset Register?

How do I enter a loan repayment?

Detailed Description

Note: you will need to be on Cashbook Level 3 or above to setup a loan account using this procedure.

Steps to setting up the purchase of an asset via a new loan:

  1. Setup a Liability (Loan) Account.
  2. Setup an Other Income Account. (linked to the Liability account)
  3. Setup an Other Expense Account. (linked to the liability account)
    • These accounts will be used to show the income and expenses to and from the loan.
    • This income account will be used for withdrawing funds from the loan. Use this account to set the loan principal, and any time the amount owing needs to increase (i.e. Interest etc.)
    • This expense account will be used for loan repayments (or to reduce the amount owing on the loan).
  4. Setup an Asset Account.
    • This Asset account is used for the purchase of the asset.
  5. Setup an another Other Expense Account. (linked to the Asset account)
    •  This expense account is used for the purchase of the asset. The purchase cost will be used to set the initial value of the asset. The value should include any GST and be before any trade-ins or deposits.
  6. Setup an Interest account.
    • This expense account is used for the interest component paid on loans.
  7. Add a Cashbook transaction to record the purchase of the asset via the loan.
  8. Add a Cashbook transaction to record a loan repayment.

 

Step 1: Setup a Liability (Loan) account:

  • Click on the Chart toolbar icon.
  • Click on the Liabilities tab.
  • Click on the Add button.
  • Add your liability account details:
    • Account Code: e.g. 701.01 (For this example we have added a sub-account to the existing 701 Loan Account)
    • (Note: Sub-accounts must start with the same code as the main or control account.)
    • Tick the Sub-Account of check box.
    • Sub-Account of: 701 Loan Account
    • Decription: e.g. JD Tractor Loan Account
    • Account Type: Liability
    • GST Category: 11. Non-reportable Receipts
  • Click on the OK button to save.

For example:


Step 2: Setup an Other Income Account

  • Still in Chart.
  • Click on the Income tab. (Scroll down to see if there is any existing Loan Account Received accounts.)
  • Click on the Add button.
  • Add your Other Income account details.
    • Account Code: e.g. 082.01(For this example we have added a sub-account to the existing 082 Loan Account - Received)
    • Tick the Sub-Account of check box.
    • Sub-Account of: 082 Loan Received
    • Decription: e.g. JD Tractor Loan Received
    • Account Type: Other Income
    • GST Category: 11. Non-reportable Receipts
    • From the Balance Sheet Link drop down menu, select the Liability Account you have just created in Step 1 (eg. 701.01 - JD Tractor Loan Account)
  • Click on the OK button to save.

For example:

 

Step 3: Setup an Other Expense Account

  • Still in Chart.
  • Click on the Expense tab. (Scroll down to see if there is any existing Loan Repayments accounts.)
  • Click on the Add button.
  • Add your Other Expense account details.
    • Account Code: e.g. 195.01 (For this example we have added a sub-account of the existing 195 Loan Repayments)
    • Tick the Sub-Account of check box.
    • Sub-Account of: 195 Loan Repayments
    • Decription: e.g. JD Tractor Loan Repayments
    • Account Type: Other Expense
    • GST Category: 10. Non-reportable Payments
    • From the Balance Sheet Link drop down menu, select the Liability Account you have just created in Step 1 (eg. 701.01 - JD Tractor Loan Account)
  • Click on the OK button to save.

For example:

 

Step 4: Setup an Asset Account.

  • Still in Chart.
  • Click on the Asset tab. (See if there is an existing Plant & Equipment account.) 
  • Click on the Add or Edit  button.
  • Add your Asset account details:
    • Account Code:410
    • Description: Plant & Equipment
    • Account Type: Asset
    • GST Category:08. Capital Acquisitions
  • Click on the OK button to save.

For example:

 

Step 5: Setup another Other Expense Account.

  • Still in Chart.
  • Click on the Expenses tab. (Scroll down and see if there is an existing Purchase of assets account.)
  • Click on the Add button.
  • Add your Other Expense account details:
    • Account Code: e.g. 190.01 (For this example we have added a sub-account to the existing 190 Purchase - Plant & Equipment)
    • Tick the Sub-Account of check box.
    • Sub-Account of: 190 Purchase - Plant & Equipment
    • Decription: e.g. Tractors
    • Account Type: Other Expense
    • GST Category: 08. Capital Acquistions
    • From the Register Link dropdown menu, select Fixed Assets. (This will provide direct access to the Fixed Asset register from data entry screens.)
    • From the Balance Sheet Link drop down menu, select the Asset Account you have just created in Step 4 (eg. 410 Plant & Equipment)
  • Click on the OK button to save.
  • Click on the Close to exit Chart.

For example:


Step 6: Setup an Interest expense account

Note: The principal is the amount you borrowed and have to pay back, and interest is what the lender charges for lending you the money.

  • Still in Chart.
  • Click on the Expense tab. (Scroll down to see if there is an Interest account)
  • For this example, we have created an Interest on Loans expense account and then created a separate sub-account for the tractor loan interest.
  • Click on the Add button.
  • Enter account details:
    • Account: 136.02 (Note: Sub-accounts must start with the same code as the main or control account.)
    • Tick the Sub-Account of check box.
    • Sub-Account of: 135 Interest Paid
    • Decription: e.g. Loan Interest Paid
    • Account Type: Operating Expense
    • GST Category: 04. Acquisitions with no GST
  • Click on the OK button to save.

 

Step 7: Cashbook entry to record purchase of asset via a loan. (and add asset to Fixed Asset Register.)

  • Click on Cashbook toolbar option.
  • Click on the Add button.
  • Click Yes to Confirm message: 'Do you want to enter transactions for "Farm Management Account", in company file "Company ABC"?'
  • The transaction Type is Cash Journal.

For example:


 

  • Click on the  F button to enter the Fixed Asset Register.
  • Click on the Add button.
  • Enter asset details.
  • Note:
    • Click on the New Asset radio dial.
    • Original Cost - net of any GST.
    • Purchased From - select from drop-down list of suppliers or enter new name.
    • Value for depreciation - this will normally be the same as the cost of the asset.
    • Date for depreciation - i.e. date from which depreciation is calculated - this will normally be the same as the purchase date.
    • Depreciation Details - Depreciation Details such as (Depreciation) Rate%, Private Use% and Method of Depreciation - Diminishing Value and Prime Cost. - these should be entered after advice from your accountant.
  • Click on the OK button to save details to Fixed Asset Register.
  • Click on the OK button to save the Cashbook transaction.

Note:

There are two methods you can use to calculate asset depreciation.

  • Prime Cost - used to depreciated assets by equal amounts each year over its effective life.
  • Diminishing Value - uses a percentage to calculate depreciation. (i.e. the value of a depreciating asset decreases more it the early years of its effective life.) 

Click on the following ATO website link: Prime cost and diminishing value methods for further information.

Note:  It is strongly advised you contact your accountant for help in calculating depreciation amounts and which method you should use. Your accountant can look at how your business operates to determine which method is appropriate. Also consult your accountant as to when to depreciate your assets, e.g. at the end of the financial year.

 Note: The sections coloured Red must have information entered in them. The other sections are optional

For example:

 

Step 8: Add a Cashbook transaction to record a loan repayment

  • Loan repayments can have two parts:
    • The principal - the amount you borrow to buy an asset.
    • The interest - what you are charged by the lender for borrowing the principal.
  • Most borrowers arrange to repay the loan in full over time. This means their repayments pay the principal and the interest. (see example of Cashbook repayment transaction below)

 

  • Click on the Cashbook icon on toolbar.
  • Click on the Add button.
  • The Transaction Type is Payment.

For example:

 

Note:

  • If the currents month's interest is paid each month on or before the specific date, there will be no interest liability. Therefore, each month's payment of interest will be allocated to the Interest on Loan expense account (see Step 6).
  • If the current month's interest is not paid off, then the interest serves to increase the amount of your loan and therefore should be allocated to the Tractor Loan - Received (Other Income) account (see Step 2).  

 

 

The credit balance of your liability account (e.g. 701.01 JD tractor Loan) should agree with the loan balance shown on the loan statement furnished by your lender. If such a statement is not provided, you can phone your lender and ask for the principal balance on your loan.

To view the balance of your liability account/s at a given date, look at your Trial Balance:

  • Click on Reports > Accounting Detail >Trial balance menu option.
  • Select the Report as at date.
  • Click on the Print button.
  • Scroll down to the Liabilities section of the Trial Balance.
  • See credit balance of your loan.

 

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