Handling a car loan; trade-in/payoff, and new loan

[FireFly]

--- On Fri, 7/30/10, Jim B <gunmetalx at gmail.com> wrote:
> This is some good feedback.  So it sounds like it
> comes down to 2
> basic ways of handling the car purchase:
> 
> A. Create the car purchase transaction as a transfer from
> the Loan to
> the Fixed Asset, or
> 
> B. Create the car purchase transaction as an expense
> (transfer from
> Loan to Expense:Auto account) and create the Fixed Asset
> separately
> with an Opening Balance of the value of the car

Not sure about the last part of that, if your just going to have it as an expense, I wouldn't bother to create a fixed asset separately, unless you want to track the car and have it as an expense, but that may give a false impression.

I understand what your saying about hiding the expense, but I guess it really depends on what your trying to show/prove.

> I can see the case for handling large liabilities
> differently when
> there's an asset involved to balance it out, but to take
> another
> example such as an education loan, or a costly addition to
> a home.
> There's no single asset which could be sold off to balance
> out the
> value of the loan.  So this would be adding a large
> liability, but
> seemingly appropriate to handle as an expense?

For a home addition or something similar there is still an asset that you are changing/improving, I didn't have a loan for it, but I had the roof on my home replaced, and that went to the cost of my home asset, I also am going to have the windows replaced and again, that will go to my home asset, however I don't know how I'd handle an education loan, perhaps an expense? Not sure (and as you say, that would likely dwarf all other expenses).

> In either case, it sounds like there's no good way to avoid
> creating
> the Fixed Asset for the car and using that to represent
> something of
> value that I hold in exchange for the loan.  I was
> hoping not to track
> this because (as mentioned earlier) I don't like the idea
> of having
> more than 1 way of handling all purchases (inconsistency);
> I don't
> track all other assets... so for example if I were to
> purchase a TV
> for $800, that is a significant purchase that could be sold
> off in an
> emergency but I probably wouldn't create a Fixed Asset
> account for it.
>  It sounds like we all have to draw our own lines somewhere
> regarding
> what we track as a "major asset," would this be correct?

Again, in your scenario B, the only reason to create the asset would be if you want to "track" it, i.e. have a good idea of total assets, or track depreciation, if you don't want to track it past initial purchase (as is the case for my groceries, and, probably anything less than a few thousand dollars) then just have it as an expense, in my case I have that mental limit around a few thousand dollars, in your case it may be tens of thousands of dollars (or whatever currency you work in).

Again, this is what I personally do, whether this is "valid" from actual accounting perspective, I have no clue.


- James Duerr

E-mail: FireFlys_98 at yahoo.com
---------------------
Discover a lost art - play Marbles. May 2004
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