I have recently purchased a car on finance. I part exchanged my old car and received £900 allowance agaist my new car. Solar accounts is showing my old car as an asset worth £1,665.55. Please can you advise me how to enter the new car with it's finance and how to account for the part exchange I received for the old car.
Hello Brian,
You can think of it as taking out a loan to buy the new car, then selling your old car to pay off some of the loan, then paying off the remainder of the loan over the period of the finance agreement.
Let's say the full price of the new car is £4,500 so you will owe £3,600 after the part exchange, and that the finance agreement requires you pay £120 per month for 3 years.
On the date you buy the car:
1. Create a new liability account called 'Car Finance Loan'
2. Record a Money Paid Out transaction from the Car Finance Loan account to Motor Vehicles for £4,500.
3. Record a Money Received transaction for £900 from the Motor Vehicles account to the Car Finance Loan account.
4. Record a General Transaction from the Motor Vehicles account to the 'Depreciation and Loss on Sale' account for £765.55 - this should leave the Motor Vehicles balance at £4500. (Note: If you are VAT registered the loss amount will be more than £765.55)
Then each month:
1. Record a Money Paid Out transaction with two lines in the Allocate To Account table: 'Car Finance Loan' for £100 and 'Interest Charges' for £20. (If you are VAT-registered you should record this as two separate transactions)
See this page for more details on selling and buying an asset:
http://www.solaraccounts.co.uk/help/how-to-record-an-asset-purchase-or-sale.php
Finally, please check this approach with your accountant as he/she may prefer a different method.
Regards,
