Entering a car payment
I have set up the loan and the attached asset account. I am entering payments and was curious how others are categorizing their payments. When you enter the payment, manually, into the register does it deduct from the loan amount?
Best Answer
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I assume the current splits are operating correctly, that they aren't really $0 but instead you're seeing a correct split between principal and interest.
From a pure accounting perspective the principal shouldn't show up in a budget that focuses on income and expenses because the principal portion isn't an expense. It's a Transfer and that's a balance sheet activity (cash goes down, auto loan goes down by the same amount). An true expense makes your net worth (assets minus liabilities) go down, and a Transfer doesn't do that.
"If I go to the loan account the [ford f-150] is deducting down by the amount in the split every month, but it isn't showing up in my udget as a auto payment:principal. In the loan register the category is [bank account] since the split is showing as a transfer. I believe that I did this because I had 2 car payments. "
Not sure what 2 car payments has to do with this. What you describe seeing is exactly correct, it's the proper accounting and I'd say you've set it up properly.
Even though a transfer, like a principal payment against the car loan, isn't a true expense, Quicken does allow you to show transfers as both incomes and expenses, and budget for them. If you go to the budgeting feature and click on "Select Categories to Budget" you'll see that there a line items for "Transfers in" and "Transfers out." That's where you'll be allowed to budget for the principal paydowns as a form of expense. You'll have to customize you Budget Report to include that. Properly done you should see a line item down in the Expenses section of the Report that reads "TO Ford F-150" and those dollars will be included in your period expenses.
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Answers
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If you have set up a loan Account in Quicken then each payment you make should be split between an interest expense Category and a Transfer to the loan Account for the principal portion. The principal portion of the payment reduces the loan's balance in the loan Account, driving it to $0 with the last payment.
If you set up the loan using Quicken's loan wizard then Quicken should have created a complete amortization schedule for the loan, a schedule that shows these splits between interest expense and principal reduction. Quicken's loan wizard can also create Reminders for these payments and you can have these Reminders entered automatically into your checking Account, if you wish.
Since car loans tend to work slightly differently than more normal amortizing loans - a mortgage for instance - Quicken's numbers can't be absolutely precise so you will need to be slightly adjusting the wizard's splits between principal and interest, (typically the difference is fairly small), based on information provided by the lender.
Now if you have set up the loan sometime after the fact of actually taking out the loan and you are attempting to go back in time end enter the loan payments before the date of set up, then you have a choice to make about how to handle those payments. That's because Quicken's loan wizard, in this situation, will take the information you have entered in the set up dialogs and calculate the loan's principal as of the date of setup, and enter this amount as the loan Account's opening balance. Accordingly, there's no principal in that Account before the date of setup to reduce with a Transfer to the loan Account for those earlier payments.
You can chose to simply expense the principal amount of those earlier payments to a Category that you create like "Car Loan Principal." That's not correct accounting - the principal portion of a payment isn't an "expense" in accounting terms - but it gets you caught up to the time of the loan's setup in Quicken and you can make a proper split for payments occurring after set up. Or, you can make an entry in the loan Account as of the date of the loan's creation with the proper amount, and split those earlier payments properly. Hopefully that exercise gets you to the calculated opening balance created by Quicken - you may have to fudge a bit to make that work - and you can delete Quicken's calculated opening balance.
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Tom, thanks for your response. right now my splits are:
[Ford F-150] - $000.00
Auto & Transport:auto payment:interest - $00.00
If I go to the loan account the [ford f-150] is deducting down by the amount in the split every month, but it isn't showing up in my budget as a auto payment:principal. In the loan register the category is [bank account] since the split is showing as a transfer. I believe that I did this because I had 2 car payments.
Would you set it up differently?
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I assume the current splits are operating correctly, that they aren't really $0 but instead you're seeing a correct split between principal and interest.
From a pure accounting perspective the principal shouldn't show up in a budget that focuses on income and expenses because the principal portion isn't an expense. It's a Transfer and that's a balance sheet activity (cash goes down, auto loan goes down by the same amount). An true expense makes your net worth (assets minus liabilities) go down, and a Transfer doesn't do that.
"If I go to the loan account the [ford f-150] is deducting down by the amount in the split every month, but it isn't showing up in my udget as a auto payment:principal. In the loan register the category is [bank account] since the split is showing as a transfer. I believe that I did this because I had 2 car payments. "
Not sure what 2 car payments has to do with this. What you describe seeing is exactly correct, it's the proper accounting and I'd say you've set it up properly.
Even though a transfer, like a principal payment against the car loan, isn't a true expense, Quicken does allow you to show transfers as both incomes and expenses, and budget for them. If you go to the budgeting feature and click on "Select Categories to Budget" you'll see that there a line items for "Transfers in" and "Transfers out." That's where you'll be allowed to budget for the principal paydowns as a form of expense. You'll have to customize you Budget Report to include that. Properly done you should see a line item down in the Expenses section of the Report that reads "TO Ford F-150" and those dollars will be included in your period expenses.
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