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Prepayments or Motor?

Question asked by Pete 1 week ago

I have put a deposit on a new car (for company)

My accountant has asked me to put this ideally in prepayments account, otherwise under "Motor"

I don't know what prepayments is in Clerabooks, would that just be an account I can create? If so what category etc.

Otherwise would I be correct if I just put it under Motor vehicles dep 401004 Exclude for VAT?

Thanks

9 Replies

Hi Pete,

The general process would be the following for a Hire Purchase:

  1. Create a bill for the purchase price (including VAT) payable to the supplier.
  2. Mark the deposit being paid off on the bill.
  3. Create a new Hire Purchase loan account (Money > Bank Account > Add).
  4. Pay the remainder of the bill using the HP account.
  5. Class the monthly HP payments as transfers between your bank account and the new loan account.
  6. Post a monthly or annual adjustment for the interest element.

You can skip steps 3-6 if this is not relevant to your case. Also, the choice of account code would depend on whether you've received the actual physical asset, if you have, I would choose a Fixed Asset account.

If not, you can choose the Prepayment code and transfer the balance to a Fixed Asset upon delivery of the asset. The way I understand is that the Prepayment account code only really matters if the deposit and receipt of asset falls between two financial periods.

However, I would advise double checking with an accountant just to double check.

Tommy

Hi

It isn't hire purchase, it's a deposit on a purchase

Hi Pete,

Then you can follow steps 1-2, and decide which account code on the basis of whether the asset has been received or not.

Tommy

Thanks, and sorry but I realised it may be slightly more complicated.

I said to him that as the final invoice may be presented after next April, it could be that we decide it is better in that tax year for me to purchase the car privately instead of the company. It seems that it is easier to be flexible if the order is placed by the company and then (if we change my mind) I just pay personally - as opposed to the other way round if I order personally and then the company pays the actual invoice with not be to the company which could cause complications.

So the only quest really is about the £250 deposit, I think he doesn't yet want the books to commit to the company creating a bill for full price of £40,000. My understanding is I could just account for the £250 this year and then the remainder of bill if and when we decided it will be a company car.

So ideally I want to keep things simple and for now just account for that £250. I think I just put it it as Motor vehicles dep 401004 Exclude for VAT account code, I just wanted to confirm that and sorry for not being totally clear.

Hi Pete,

It sounds as though a Payment on Account would be sufficient. To do so, you must head to Purchases > Unallocated Payment, this will Credit the Bank and Debit Trade Creditors, you can then decide if you want to declare VAT on this when running your next VAT return. If you then decide to account for the bill, you can allocate the payment to the bill accordingly.

With regards to the account affecting Trade Creditors, this will have the same effect as using Prepayments, as they're both a balance sheet item. The alternative method would be to create your own journal Credit Bank Debit Prepayments. Again, please do double check with an accountant.

Tommy

Again, please do double check with an accountant.

hah, yes I was hoping to avoid that as I was getting a bit worried I was bugging him with too many questions

Hi Pete,

Unfortunately, I am not permitted to give out accounting advice as I may be missing some potential implications. :(

Tommy

I understand that totally, I'd hate to have to sue you :)

I was just trying to clarify what he meant by either prepayments or Motor.

Hi Pete,

Haha, I'd be disappointed :(

And, I think the choice of account just depends on if you've actually received the asset or not.

Tommy

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