Accounting Question Canadian



I just received a loan from a finance company, to purchase some equipment
for my small business.

A computer, printer, desk and other supplies. The arrangment is that I
purchase all the items I need, they totalled 7900 and the finance company
will be billed for them. I will then make payments to the finance company.

How do I enter the transaction. Do I only inlcude the payment I will incur
to the finance company on my financial statements? Or do I also include the
equipment I bought?

Also how do I then claim the Input Tax Credits on the GST/HST

Any help appreciated.




Wolfgang Rochow

Are you sure you bought anything. It sounds more as though you picked out
what you needed and the finance company bought it (it is being invoiced to
them, not you).

What does your written agreement with the finance company say. The payments
called for may be a straight rental or a lease (with or without and option
to purchase the items at the end of the lease term at fair market value or
at a fixed percentage). Or it may truly be a finance arrangement in which
event, the items should have been invoiced to you and the finance company
merely advanced funds to you (gave you a loan) even though the proceeds may
be or have been paid directly to the supplier.

Therefore, get your facts first (read everything, including the fine print),
because the answer is different for each scenario.

(e-mail address removed) (remove contact to email me)


Thanks for the response,

The situation is similiar to what your second scenario states. The finance
company provides a line of credit in the form of a loan. Anyway, I purchase
the items and they are invoiced to the Finance company, but I take the items
with me and also receive a copy of the invoice. I own the items I purchase.

So really my question is how do I account for these items on my Financial
Stmts, and claim the Input Tax Credits for the GST/HST.



Wolfgang Rochow

If you truly own the items and the finance company simply provides a loan,
then the following entry is needed:

You use your Invoice Copy as your supporting document and:
Dr Furniture & Equipment (Fixed Assets section) for the Computer, Printer,
and Desk
Dr Office Supplies (or similar name in the Expenses section) for the
Dr GST/HST Paid* (or similar account in the Current Assets section) for the
GST/HST charged
Cr Loan Payable (in the Liability section, depending upon the term, it may
involve a Lon-Term Debt)

* This is netted against any GST/HST charged by you to your customers,
resulting in either a reduced payable or a refund due.

When making your payments (presumably monthly) to the finance company, each
payment will have an interest component with the residual (principal
portion) being a reduction of the loan balance. Make the following entry:

Dr Loan Payable (principal portion)
Dr Interest Expense (interest portion)
Cr Bank (payment amount)


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