Auto loan monthly payments & final payoff vs Expenses Total for the year.

N+13 · January 2022

I had an auto loan that had monthly payments and a full payoff, all in 2021.

I established a liability account for the loan and made 9 payments. Then I paid off the balance. My approach was not optimal and now I want to get full year expenses to buy the car correct.

The primary issue is the monthly payments do not show up in my expenses, given my mistake in the way I set this up. I wish to add these monthly payments to the payoff (which is properly in expenses for the year) so the report "by category" contains the full amount of what I spent on the car in 2021.

Any ideas?
N+13

Tom Young · January 2022

The only "true" expenses associated with the regular "monthly payments" would be the interest element of the payments. The principal portion of the monthly payments are not expenses, thy are a pay down of the auto loan liability. Although pulling money out of your pocket and paying down the principal of a loan "fells like" an expense, it isn't. If paying down loan principal is an expense then, logically, taking out a loan and receiving all that principal should be accounted for as "income", and nobody does that.

The basic accounting for paying loan principal, either through regular payments of a lump-sum payoff, is

Debit (decrease) Auto Loan Liability $XXX
Credit (decrease) Cash in Bank $XXX

That action occurs entirely on your balance sheet, it doesn't flow through an Income and Expense report, it doesn't affect any Quicken Category.

Frankly I don't understand why the payoff would show up as "In expenses for the year"; the only way you can get this cost to be treated as a quasi-expense is to set up your report to include transfers (movement between balance sheet Accounts) as a line item. If you have set up your report this way then the principal portion of the monthly payments should be included with the final payoff amount.

How did you account for the payoff?

N+13 · January 2022

I appreciate your thoughtful answer and I would agree with you if I wanted to treat the car as a capital asset and do everything thru the balance sheet. But I don't.
Think of it this way. I use cash accounting and I bought a car this year and paid cash, sort of. In reality, I paid for the entire car in one year and there were some additional interest charges which are additive to the cash purchase of the car. Bought a car for $25,000, paid interest of $1,000 and I want to see $26,000 in my report on expenditures.
When I paid off the car, I created an expense transaction, just like I want. I've recorded interest as an expense, just like I want. But my payments for 9 months had a paydown component that I have not captured and that is what I am puzzling about.
Thanks again for thinking about this.

Jim_Harman · January 2022

The simple way to handle this would be to not set up the loan at all and just record all your payments as expenses.

Or you could exclude the loan account from your spending report and set the Transfers setting on the advanced tab of the report to Exclude internal.

[@Tom Young may object to this]

Tom Young · January 2022

N+13 said:

But my payments for 9 months had a paydown component that I have not captured and that is what I am puzzling about.

I'm puzzled too. Quicken uses no judgement and exercises no discretion when it comes to your accounting. Its output should flow logically from your input and how you set up your reports.

You said you set up a loan, made monthly payments, then paid off the balance. All those entries, even the payoff, should look exactly the same, differing only in their amounts:

Debit (reduce) Loan Liability Account $XXX
Debit (increase) Car Interest Expense Category $YYY
Credit (decrease) Cash in Bank Account $ZZZ

The Car Interest Expense will, automatically, show up in a spending report as an expense because that $YYY amount was posted to a Category. If I wanted to principal amounts to also show up as an expense then I'd customize the report to include that as a form of "Expense." It would show up as a line item reading "TO Loan Liability Account." The sum of the Car Interest Expense and the To Loan Liability Account amount would represent the cost of car ownership (principal plus interest) as a current event.

If I was adamant that all amounts paid would reflect the car ownership expense then I wouldn't set up the car loan at all, I'd do as @Jim_Harman suggests and make every payment look like:

Debit (increase) Car Expense Category $AAA
Credit (decrease) Cash in Bank Account $AAA

That way a Spending report, right out of the box, would show all payments as an expense posted to the Car Expense Category.

Any report covering the entire event - taking out the loan to final loan payoff - would present either of these accounting approaches consistently, it's not going to leave off "regular payments" but present "loan payoff."

So, you're not giving us the complete picture or have found a Big Bug in Quicken. It appears that you did use a Category, not an Account, for the offset to your final payment, which now brings up the "complementary" question to my first question: How did you get the loan off the balance sheet?

(And, despite what @Jim_Harman says, I have no problem with anybody's presentation of anything. I've certainly shown transfers between Accounts as a form of expense of income as it suits my purpose. I answered as I did because you did set up a car loan Account, which suggests that you had to get rid of that car loan Account, somehow, and the only way to get rid of that loan through a series of payments is by making the transfers show up as a quasi-expense.)

N+13 · January 2022

To Tom and Jim: thanks for the advice and effort you put in. I'll distill it and come up with something that works for me. Stay safe.

Auto loan monthly payments & final payoff vs Expenses Total for the year.

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