If someone bought a vehicle on credit what will I enter on the source documents in the accounting equation

Answer 1

When a vehicle is purchased on credit, it will impact the accounting equation, which is:

Assets = Liabilities + Equity

Here's how to record it:

1. Asset: The vehicle is an asset, so you will increase the asset account, typically "Vehicles" or "Vehicles/Equipment" by the cost of the vehicle.

2. Liabilities: Since the vehicle was purchased on credit, you'll also incur a liability, often recorded in an account like "Accounts Payable" or "Notes Payable," depending on the terms of the credit.

Example Entry:

• Debit (Increase) Vehicles: This reflects the increase in assets for the vehicle purchased.
• Credit (Increase) Accounts Payable or Notes Payable: This reflects the increase in liabilities due to the credit purchase.

Journal Entry Format:

If the cost of the vehicle is, for example, $20,000, the journal entry would look like this:

Date        Account Title              Debit         Credit
-----------------------------------------------------------
YYYY-MM-DD  Vehicles                  $20,000
            Accounts Payable                        $20,000

Summary:

• On the Source Documents: You will enter the amount for the asset (vehicle) in the debit column and the corresponding liability (accounts payable or notes payable) in the credit column. This ensures that the accounting equation remains balanced.