Question

I would like to know how to record this transaction on quickbooks:

On 08/01/2017 The company purchased from ford motors on account, a van for $12,000 that will be used for 5 years. This van will have a residual value of $3,000 at the end of its fifth year. The van will be used to make deliveries for the company

Answer 1

From the facts given, It is clear that the vanbis going to be used to make deliveries for company. Hence, it is considered as the fixed asset of the company, since it generates economic inflows to the company for more than one year.

Since, itbis given that the van had been purchased "on account" ,which means it is purchased on credit basis, the journal entry for recording the fixed asset credit purchase will be

Van a/c . Dr. $12,000

To. Ford motors a/c. $ 12,000

(Being fixed asset purchased on credit)

Since,it is a fixed asset, depriciation has to be charged every year.

Depriciation =(cost of the asset- residual value)/no.of years

=($12,000-$3,000)/5

=$1,800

Hence , depriciation of $1,800 to be provided each year. The entries at the end of each year for recording depreciation will be

Depriciation a/c Dr. $1,800

To Van a/c. $1,800

( being depriciation charged on fixed asset)

Profit and loss a/c. Dr $ 1,800

To Depriciation a/c. $1,800

( being depriciation transferred to p/L a/c)