Purchase of Motor Vehicle Journal Entry
The purchase of a motor vehicle is the process the company acquires the vehicle from the supplier. It can be a significant financial investment for the company depending on the amount of purchase. It is important to consider all aspects of the purchase before making a decision.
The motor vehicle is an important asset for businesses. It helps businesses move their products around, which can be a big boost to productivity and efficiency. Additionally, a motor vehicle can help businesses expand their reach by making it easier to transport goods and services to new markets. Finally, a motor vehicle can be a valuable marketing tool, helping businesses to promote their brand and reach new customers.
There are a few things to keep in mind when using a motor vehicle for business purposes. First, it is important to make sure that the vehicle is well-maintained and in good condition. This will help to ensure that it can handle the demands of users and that it will not break down or cause problems. Additionally, businesses should make sure to insure their vehicles properly in case of accidents or damage. Finally, businesses should consider using GPS tracking devices for physical protection.
The motor vehicle will be classified as the fixed assets on the company financial statement. The purchase of a motor vehicle will increase the fixed assets on balance sheet. The other side will increase the liability if it is the credit purchase. But they still have obligation to settle with suppliers in the future.
If they purchase and make payments immediately, it will impact the cash balance. It depends on the buyer who decides on the term of purchase.
Subsequently, the motor vehicles must be depreciated based on the expected useful life and depreciation method. The fixed assets amount on balance sheet will be reduced by the depreciation charge. The fixed asset’s net book value equals cost less accumulated depreciation.
Journal Entry for Purchase of Motor Vehicles
The motor vehicles are required to record as the fixed assets on balance sheet. The purchase of motor vehicles will increase the fixed assets balance. It also increases the liability or reduces the cash balance.
The journal entry is debiting fixed assets and credit accounts payable if the purchase is on credit.
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets – Motor Vehicles | XXX | |
| Accounts Payable | XXX |
If the company purchase using cash immediately. The entry will be debiting motor vehicles and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets – Motor Vehicles | XXX | |
| Cash | XXX |
Example
Company ABC just purchases 100 units of motor vehicles to support the business transactions. The total cost of vehicles is $ 2 million and company purchases on credit. Based on the company policy, these vehicles are required to record in the classification of the fixed assets and depreciate for 4 years. Please prepare journal entry for the purchase of motor vehicles.
The entry debiting motor vehicle $ 2 million and credit accounts payable.
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets – Motor Vehicles | 2,000,000 | |
| Accounts Payable | 2,000,000 |