It’s not uncommon to buy a piece of equipment via a loan. In this article, we’ll walk through an example of how to handle this situation using your balance sheet in Ambrook to clearly show the flow of money.
Example: buying a tractor with a loan
In this example, you are purchasing a new tractor using both a down payment and a loan you took out for the remaining amount. The total cost of the tractor was $10,000; you paid $2,000 using your credit card connected to Ambrook and took out a loan for the remaining $8,000 through your dealer. The dealer took the money from the loan directly as part of the purchase, so you don’t see this transaction on your ledger. To set this up in Ambrook, you would use the following steps:
Create two custom accounts on your balance sheet: one for the loan, and one for the asset. Set the opening balance for each of these accounts equal to zero, and the starting date as the date you purchased the tractor.
Create a balance adjustment on the loan account for the total purchase price of the asset, including the sales tax in that total amount.
Click into the loan account and select “Filter Transactions” to easily find the balance adjustment you just made in the ledger. Then, tag that adjustment as an asset transfer and apply it to your newly created asset account. This will establish the full cost basis of your asset.
Next, find the credit card transaction for $2,000 representing your down payment. Tag this transaction to the loan account you created. This will reduce the amount of your loan by the down payment amount.
As you make payments on the loan in the future, these transactions will appear in your ledger. When you see one, be sure to check what the split between principal and interest is by using whatever documents your lender provides. Create two line items, and apply the principal amount to your loan account by using a Loan Transfer tag.
Overtime, you can make sure you have been tagging correctly by checking that your loan balance should always be equal to the balance showing on your most recent statement.
This helps you show both the asset and liability balances while tracking the flow of money between accounts.