When a dealer gives you credit for your old equipment toward a new purchase, two things happen at once in your books:
The old asset comes off your balance sheet. The difference between the trade-in credit and the old asset's net book value (its cost minus depreciation) shows up as a gain or loss.
The new asset goes on your balance sheet at its full price, paid for with the trade-in credit plus any down payment and loan.
Trading in land or buildings? The steps are different. Ask your accountant, or contact our support team.
Before you start
Have these numbers handy:
The new asset's price, from your purchase agreement or bill of sale
The trade-in allowance, which is what the dealer credited you for the old asset
The old asset's cost and accumulated depreciation, from the Accounts page or your accountant's depreciation schedule
Your down payment and the amount you financed, if any
Bring depreciation up to date on the old asset
If it has an Ambrook depreciation schedule:
On the Accounts page, open the asset, scroll to Book Depreciation, click ... and choose Cancel schedule. Don't choose Delete schedule, which voids every depreciation entry the schedule has posted.
Canceling stops future entries and keeps the depreciation already posted. If depreciation is still due between the last posted entry and the trade-in date, record it with a journal entry: debit Depreciation Expense and credit the asset's accumulated depreciation account.
If you track depreciation manually: Record this year's depreciation up to the trade-in date with a journal entry: debit Depreciation Expense and credit Accumulated Depreciation. See Manually tracking Asset Depreciation in Ambrook.
If you don't depreciate the old asset: Nothing to do here.
Not sure how much depreciation to record? Your accountant's depreciation schedule shows it.
Example
You buy a new tractor for $100,000:
$20,000 trade-in allowance for your old tractor. The old tractor cost $50,000 and has $40,000 of accumulated depreciation, so its net book value is $10,000.
$30,000 down payment from your checking account
$50,000 loan, which the lender pays directly to the dealer
Step 1: Create the new asset account (and loan account)
Go to Accounts and click New Account. Choose the asset type (for example, Equipment), set the Starting Balance to $0.00, and set the Starting Date to the purchase date.
If you financed part of the purchase, create a Loan account the same way, with a Starting Balance of $0.00 and the purchase date as the Starting Date.
Step 2: Record the trade-in with one journal entry
Go to the Ledger, click New, then Journal Entry:
Account / Category | Debit | Credit |
New tractor (asset account) | $20,000 |
|
Accumulated Depreciation (old tractor) | $40,000 |
|
Old tractor (asset account) |
| $50,000 |
Gain or Loss on Sale of Asset |
| $10,000 |
To fill in the entry for any trade-in:
Debit the new asset for the trade-in allowance.
Debit the old asset's accumulated depreciation for all the depreciation recorded on it.
Credit the old asset for its full balance (its original cost).
Add a Gain or Loss on Sale of Asset line for the difference so the entry balances. Enter it as a credit if the allowance is more than the old asset's net book value (a gain), or as a debit if it's less (a loss).
Don't see Gain or Loss on Sale of Asset? Go to Settings > Categories, add a new category, and search for Gain or Loss on Sale of Asset. It's listed under Other Inflow.
Allowance lower than book value? If the dealer had given you $6,000 instead, the entry would be: debit New tractor $6,000, debit Accumulated Depreciation $40,000, debit Gain or Loss on Sale of Asset $4,000, credit Old tractor $50,000.
Don't depreciate the old asset? Leave out the accumulated depreciation line. Credit the old asset for its balance, and use Gain or Loss on Sale of Asset to balance.
Which accumulated depreciation account? If the old asset had an Ambrook schedule, choose the account the schedule created. In the journal entry's account list, it shows as Accumulated Depreciation with the asset's name underneath. If you use one Accumulated Depreciation account for all your assets, debit only this asset's share.
Step 3: Add the down payment to the new asset
On the Ledger, find the $30,000 down payment. Click Category and choose Asset Adjustment under Record on Balance Sheet, with the new tractor account in the To field.
Step 4: Record the loan with a journal entry
If the lender paid the dealer directly, go to the Ledger, click New, then Journal Entry:
Account / Category | Debit | Credit |
New tractor (asset account) | $50,000 |
|
Loan (liability account) |
| $50,000 |
This adds the financed amount to the new tractor's cost and sets the loan's balance to what you owe.
Loan fees rolled into the loan? Split the debit: debit the new tractor for the financed part of the price, debit your loan fees category for the fees, and credit the loan for the full amount.
If the loan funds were deposited into your bank account first, tag the deposit as a Liability Adjustment to the loan, and tag your payment to the dealer as an Asset Adjustment to the new tractor. See Recording Asset Purchases.
Result
Account | Balance |
New tractor | $100,000 ($20,000 trade-in + $30,000 down + $50,000 loan) |
Old tractor | $0 |
Old tractor's accumulated depreciation | $0 |
Loan | $50,000 |
Gain or Loss on Sale of Asset (Profit & Loss) | $10,000 gain |
Step 5: Close the old asset's accounts
Once the old asset reads $0, go to Accounts, click it, scroll to the bottom, click Remove Account, and choose Close Account. Closing hides the account from reports and keeps its history. Delete Account erases it and can't be undone. Close the old asset's accumulated depreciation account too, if it was only for that asset.
Frequently Asked Questions
I still owed money on the tractor I traded in. The dealer paid it off and added it to my new loan.
Record the payoff with a journal entry: debit the old loan and credit the new loan for the payoff amount. Then close the old loan account once it reads $0. Your new loan's total will be higher than the amount applied to the new tractor, and that's expected.
I didn't make a down payment, or I didn't take out a loan.
Skip that step. The new asset's balance should still equal the full purchase price.
The dealer paid me money on top of the trade-in.
Before the Step 2 journal entry, tag that deposit as an Asset Adjustment with the old asset in the From field. Then credit the old asset only for the balance that's left.
Can I include sales tax or fees in the new asset's cost?
Often, yes, for costs of buying the asset and getting it ready to use, like sales tax, delivery, setup, and title fees. Tag those payments as Asset Adjustments to the new asset. If these costs were financed, they're already in the loan amount, and Step 4 adds them to the asset's cost.
Loan costs, like origination fees or points, aren't part of the asset's cost even if they were rolled into the loan. Record them as Bank Fees or Loan Fees, and check with your accountant if you're not sure how to handle them.
How is the trade-in treated on my taxes?
Your tax return may treat a trade-in differently than your books do depending on the asset and your situation. Share the trade-in details with your accountant, including the trade-in allowance, the new equipment's price, and any cash or loan used.
Always ask your accountant for guidance on your specific trade-in.