Journal Entry for Truck Purchase
Purchasing a truck is a business transaction that the company acquires the truck to support the operation.
When it comes to the movement of goods, a company‘s decision to purchase a truck can be an important factor in the successful growth of the business. Trucks can transport substantial quantities of supplies and products from one location to another.
It is greatly increasing efficiency in the collection and delivery of goods. Additionally, purchasing trucks provides other practical benefits and can be a wise investment for many businesses.
One main reason for companies investing in trucks for their operations is to increase their shipping capabilities. Most trucks’ bigger size and capacity make them ideal for carrying heavy loads over long distances.
Trucks provide more flexibility than other transportation methods; while many longer shipments are often shipped via air or rail, trucks provide companies with the ability to ship smaller loads around town quickly. This method can improve customer service as well as help reduce unnecessary costs associated with air or rail shipping.
Another benefit of purchasing a truck is energy efficiency. Today’s environmentally friendly trucks run on gasoline or electric, helping to lower overall fuel costs, keeping emissions low, and reducing the company’s carbon footprint.
As the accountant, we need to proper category the truck purchase on the balance sheet to prevent any misunderstanding. The truck is purchased to support the company’s operation rather than resell, so it should be capitalized as fixed assets rather than inventory. The company needs to estimate the useful life of the truck and depreciate over that period.
Journal Entry for Purchasing Truck
The purchase of truck will impact the company balance sheet. It will increase amount of fixed assets and reduce cash balance. It can increase the accounts payable if the purchase is on credit.
The journanl entry is debiting fixed assets and crediting cash.
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets – Truck | XXX | |
| Cash | XXX |
The fixed assets will increase based on the purchase price including some applicable costs such as shipping, clearance fee, non-refundable tax, and so on.
Example
ABC is the logistics company that transport from rural area to the city. The company has purchased a truck from the supplier to support the operation. The truck cost $ 120,000 and it is expected to use for more than 4 years. Please prepare journal entry for purchase of truck.
The company purchase truck to support its operation rather than to resell. So the truck is recorded as a fixed asset on the company balance sheet.
The truck has to be capitalized as a fixed asset and depreciate over the asset’s lifetime.
The journal entry to capitalize the fixed assets:
| Account | Debit | Credit |
|---|---|---|
| Fixed Assets – Truck | 120,000 | |
| Cash | 120,000 |
The entry will increase the fixed assets balance on the company’s balance sheet. The cash has decreased as the company already make payments to the supplier.
At the end of the month, company has to record the depreciation expense which is the allocation of fixed assets cost over the truck’s lifetime.
Depreciation Expense = $ 120,000 / (4 years x 12 months) = $ 2,500 per month.
The journal entry is debiting depreciation expense $ 2,500 and crediting accumulated depreciation.
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | 2,500 | |
| Accumulated Depreciation | 2,500 |