Recording a new car lease in your accounts system

Recording a new car lease in your accounts system

You lease a new car. In Ireland you are not allowed to claim back VAT on car lease payments.

So, all transactions include VAT

Details

The car costs €30,000 including VAT (no Trade ins or upfront payments)

The total Interest on the lease is €2,250

You will make 37 payments of 871.62 per month

The monthly interest is €60.81

The monthly capital amount being paid is €810.81

Summary of leasing costs per month and per lifetime of the lease

Capital	€810.81	Per month
37 payments	€30,000*	Lifetime of lease
Interest	€60.81	Per month
37 payments	€2,250*	Lifetime of lease
Capital and interest	871.62	Per month
37 payments	€32,250*	Lifetime of lease

*The are rounding amounts of a few cents in each case

You need the lease agreement from your Leasing company to get all the details required

It is also good practice to file the leasing paperwork in a safe place with all the other car related documents for easy access when the lease ends and during the life of the lease if queries arise.

What do we need to do?

Setup a supplier account for the car showroom you bought the car from

e.g. VW Leasing Company, default VAT rate of 0%, non-resale, GL code 9000

Ensure there is a General Ledger account setup for Motor Vehicles (GL Code 5000)

Setup a General Ledger (Profit and Loss) Leasing Interest Account

Setup a General Ledger (Balance Sheet) account for the car lease (GL Code 9000)

Journals to process the lease in the General Ledger (Nominal Ledger)

G/L Code	G/L Name	Narrative	Debit	Credit
5000	Motor Vehicles	VW Car 212 D 1234	30,000
9000	Lease 01 VW Leasing	VW Car 212 D 1234		30,000

Supplier transactions

Supplier Invoice entered into the supplier’s account

Value of Invoice €871.62

Supplier payment entered into the supplier’s account

Value of Payment €871.62

Leasing Interest Journals

G/L Code	G/L Name	Narrative	Debit	Credit
3005	Leasing Interest on Motor Vehicles	VW Car 212 D 1234 Interest	60.81
9000	Lease 01 VW Leasing	VW Car 212 D 1234 Interest		60.81

GL Code 9000 contents

Date	Tran Type	Narrative	Debit	Credit	Balance
15 Jul 2021	JL	VW Car 212 D 1234		30,000.00	30,000.00
15 Jul 2021	PI	VW Leasing Company	871.62		29,128.38
31 Jul 2021	JL	VW Car 212 D 1234 Interest		60.81	29,189.19

Additional charges on the lease

There can be documentation fees that are also added to the cost of leasing. Deal with fees as if they were a leasing interest charge

The main principles in this article are

1. Process the lease through the supplier’s ledger so that the transactions can appear on your VAT reports
2. By setting up a suppliers account, you can easily track payments to the leasing supplier to help manage your cashflow. If you posted the leasing payment directly to your general ledger (nominal ledger) you won’t see the payment in your supplier payment run
3. By setting up a separate GL account for each lease, you can easily see the liability on each lease separately. When the lease ends or finishes early, you can manage that lease on its own and bring its balance to zero to show that it is finished.

The method I have written about here I have found to be the easiest way for Bookkeepers to manage car leases.

How interest is apportioned each month can vary depending on your businesses policies.

Some Bookkeepers do not use the Suppliers ledger and post the payment directly to the General Ledger. I prefer not to use this method because with leases on vans or other assets there is vat that can be reclaimed which can be easily claimed through the supplier’s ledger and purchase invoices.

There is not one way to deal with car leases, but whatever method you use, do it the same way for all of your leases.