Van Finance Lease

Hi Jonathan

The accounting for these will depend on whether you are a Ltd Company or not.

Under a Ltd company, the accounting for finance leases and HP arrangements tend to be the same, in that you record the purchases of the van, as if you had bought it with a loan. So, say the van would have cost you £12,000 cash this appears in the Motor vehicle account (under fixed assets) and under a long term debt account named after the finance company. This can be put into the books by way of a Journal entry.

If you then pay the Finance company £350 per month over 36 months this will mean you pay them £12,600 over the term of the lease and so the charges/interest that you pay is £600. So every time £350 leaves the bank account £333.33 goes to the long term debt account, to pay off the £12,000, and £16.67 goes to "lease finance cost" account under finance costs.

If you are not a Ltd company then only HP (or lease purchase) arrangements tend to be accounted for as above, with all lease payments treated as an expense to say "leasing costs' account. The easiest way to tell a finance lease from say a lease purchase arrangement is that the former charges you VAT on each payment.

This is only a brief explanation, but I hope it helps.

This helps a massive amount thank you so much, you have given the same advice I received from another forum today. Greatly appreciated.

Hi I don't suppose you can talk me through the process of doing what you have explained. The cash cost of the van is £15000, the interest is £3559.12 over 5 years. 8.34% implicit. We are a limited company. what would the journal entry be ?

As I thought - can't upload a PDF so email me.

just popped an email over to you, my email is aandjgardenservices@live.co.uk