Lease Accounting Entries on Sage

JJH1969

I have a client who has purchased a large peice of equipment from the EU for say £75k. They paid £25k and then invoiced a leasing company for £50k plus VAT for the rest of the money and are paying monthly amounts against this financing. What would be the accounting entried in SAGE for this transaction?

CeeJaySix

I'm not an expert on Sage so the specific details for the program might be slightly off; I've assumed that the lease company paid the supplier direct (ie. the finance monies didn't come through the client's bank) and that it's a finance lease as it's the full cost of the asset.

As an aside, to me it seems odd that they've taken finance for the balance plus VAT, as the VAT is notional (its paid and reclaimed on the same return) (assuming your client and the supplier are VAT registered)? You don't mention VAT on the £25k? I've assumed both companies are VAT registered and there was no VAT included in the leased amount...

Anyway, the way I'd do it...

Purchase invoice for full amount with a T8 tax code (again assuming both companies VAT registered & VATable goods) on the supplier a/c with the dr to P&M at cost.
Bill payment for the £25k supplier a/c against bank.
Not sure if you can use a bill payment or have to journal this bit - dr supplier a/c, cr a finance lease code (might have to create one, I think around the 2300 region) for the £50k. If you're creating one make sure you check the chart of accounts. Obviously if the monies came through the client's bank you can add the extra debit/credit in here.

Net result should be supplier balance of nil, £75k in fixed assets, bank £25k down, and a £50k liability being recognised. The T8 code *I think* should sort the VAT out for you automatically, but as above I'm not an expert on Sage so check the transactions included in the return (boxes 2, 4, 7, 9).

What you do after that depends on whether you're preparing the stat accounts yourself. If not, divide the 50k by the number of regular payments to work out the capital element, and anything over and above this from each payment gets charged to costs of finance in the P&L. You can set up a recurring entry from the bank against the finance lease n/c and the cost of finance n/c and let it do it's thing. The accountants preparing the stat accounts will sort out the exact capital/interest split at the year end.

If you are doing the stats, to make life easy I'd calculate the correct amount of capital and interest on each payment rather than leaving it til the year end. If you're really lucky, the lease company will invoice each payment with the split on it, so you just have to post accordingly. If not, you can get Excel templates or use the sum of digits method to calculate - Google, or if you're stuck drop me a PM, I have a template at work.

As ever I stand by to be corrected by someone with more experience...

peaman

I agree with CeeJaySix, this is the way I would do it. However, you should not post a journal to a control account (sales or purchases), I would issue a credit note for £50k (T2) and post to the finance lease code.

CeeJaySix

Yes agreed - my apologies, didn't think that through without the program in front of me...

JJH1969

I'm not an expert on Sage so the specific details for the program might be slightly off; I've assumed that the lease company paid the supplier direct (ie. the finance monies didn't come through the client's bank) and that it's a finance lease as it's the full cost of the asset.
No the company paid the supplier the full amount excluding VAT as it was from Germany and the finance company paid the clients bank account £50k plus VAT.
So I should enter the supplier invoice against fixed assets on VAT code T8
The cash from the leasing company was paid when the client issued them an invoice T2 code - this invoice should go against some kind of liability account i.e 2300 finance lease
Im not doing the statutory so just split interest into P&L and capital to finance lease each month when payments are made?
Is this correct?
Thank you both

CeeJaySix

Yes you should still enter the full supplier invoice as T8 against fixed assets - this I believe should sort the VAT return out, but as I said check it's included by using the 'Details' option after you've hit 'Print' on the VAT return as I'm not 100% on the ins and outs of VAT on Sage.

Your client then paid the invoice in full (£75k) - so normal bill payment.

T2 is exempt from VAT by default I believe, what VAT treatment is being applied? Yes that invoice would be against the liability a/c (if there is any VAT that would have to be treated as normal and paid as output tax). I am assuming that as the client bought the asset itself outright it is now effectively selling it to the lease company, but I'm afraid that's outside my comfort zone.

The cash received from the lease company will then be a receipt against the trade debtor created by the invoice to the lease company.

Interest - yes if you're not doing the stats, the easiest way is just to work out what proportion of each monthly payment will cover the capital by the end of the term (or capital less any final balloon payment if there is one in the lease agreement) and put that against the liability, with the remainder to the P&L as costs of finance.