How to set up auto lease

[Allen Johnson]

Hello,

I recently leased a car and I don't quite know how to set up the
account in Quicken 98. I have set up standard car loans in the past,
but in the lease, I have 16 payments that are tax-exempt; the
remainder have tax added. How can I set up the account short of
creating each and every transaction in advance? I would like it to
reflect the tax paid, if possible.

Any and all suggestions would be welcome.

Allen

[Michael Abbaticchio]

You could set it up as a liability account. I did not bother to set up
an account for mine. It is not an asset to me, so why would I need to
track it? I simply catagorize it as automobile:lease

The only value as I see in setting up a liablility account is the ability
to track the remaining balance on the lease, but most leases short and
easy to keep track of without any help.

Allen Johnson wrote:

--

Michael A. Abbaticchio
abba...@mindspring.com

[Dave Paul]

Allen Johnson <spam...@yourhouse.com> wrote in message
news:37b8baaa...@news.mciworld.com...

> Hello,
>
> I recently leased a car and I don't quite know how to set up the
> account in Quicken 98. I have set up standard car loans in the past,
> but in the lease, I have 16 payments that are tax-exempt; the
> remainder have tax added. How can I set up the account short of
> creating each and every transaction in advance? I would like it to
> reflect the tax paid, if possible.
>
> Any and all suggestions would be welcome.
>
> Allen

Allen,

Like Michael, I've chosen to not set up the lease as if it were a loan,
since the leased car isn't an asset, and there isn't a declining interest
component. I think of it more in terms of a utility payment, so I didn't
set up a specific account for it. I created an Auto:Lease Payment category
(or maybe it was already there; don't remember). I also set up a repeating
payment which contains a split transaction: the lease payment itself is
recorded under category Auto:Lease Payment, and the sales tax in Tax:Sales
Tax.

In your situation, you could set up two repeating payments: one for the
first 16 payments, without the split to include the sales tax, and another
to begin a month after the last occurrence of the first payment series that
includes the split.

Dave

[Allen Johnson]

"Dave Paul" <pm...@hotmail.com> wrote:

Text not included

>In your situation, you could set up two repeating payments: one for the
>first 16 payments, without the split to include the sales tax, and another
>to begin a month after the last occurrence of the first payment series that
>includes the split.
>
>Dave

Thanks for the insight, Dave. I believe yours and Michaels
suggestions will get me on the right track.

It didn't really occur to me that a lease is not an liability.

Allen

[R. C. White]

Allen, you've received good advice in this thread and it sounds like you
have the problem under control. But, I thought I might add a little insight
to the "lease/purchase" situation.

Before you sign the "lease" contract, you must read the whole thing, not
just the title in big print at the top of the page. Many "leases" are
actually purchase contracts, even if couched in lease terms, because no
other interpretation makes economic sense. If you are required to make 36
monthly payments and then can buy the car at the end of the lease for $1,
the deal must be a purchase because it would make no economic sense to not
make the token payment and acquire the 3-year-old vehicle. On the other
hand, if the contract gives you only the right to buy the car at fair market
value at the end of the lease, then it would seem to be a true lease. Your
payments give you the right to use the vehicle, but no real equity in the
asset. Your end-of-lease option is an economic wash; it should make no
economic difference to you whether you exercise the option or forfeit it.
End-of-lease FMV, as estimated at the beginning, may turn out to be far off
the mark, but if it is an honest estimate then it should be given full
weight in recording the contract.

About 30 years ago, when car leasing first became popular with consumers,
this topic got debated pretty thoroughly among accounting professionals,
trying to decide how to apply generally accepted accounting principles to
such transactions, and between taxpayers and the IRS, trying to decide how
much is deductible and when. Both debates came to similar conclusions,
which are as I said in the previous paragraph: Give little weight to the
title of the contract; read all the terms and evaluate them in light of
economic reality.

In other words, treat the entire transaction according to its economic
reality, not according to the legal niceties in the contract. Accountants
classify the transaction as a "capital" lease if you are acquiring an equity
in the car, or as an "operating" lease if it is, in fact, a rental
arrangement.

If the contract is an operating lease, then record all the related
transactions like you would any other rental arrangement: Don't record the
car as an asset, or the future rental payments as debt; record each month's
payment as Car Rental Expense, just like if you were renting an office in a
building. For a 100% business car, deduct the whole car rental; for a car
used partly for business, deduct the appropriate amount using the very
complex rules from the IRS.

If the "lease" contract is in economic fact a purchase, then don't use
rental terminology at all: First, you must compute the economic realities
and then record them. That is, you must determine the implicit interest
rate in the contract and use that to calculate the actual purchase price of
the car and the actual interest amount in each required payment. You say
there is no interest? Of course there is! That's why the total required
payments are more than the car would cost if you paid cash today. Record
the true price of the car as an asset and the "present value" of all the
required payments as a liability. (The asset should equal the liability -
including the down payment, of course.) As each "lease" payment is made,
calculate the split between interest and principal and record them just like
you would for a house loan payment. When you make the final $1 or other
token payment at the end of the "lease", it should reduce the liability
account to zero. For a business car, calculate depreciation on the "leased"
automobile, just like you would if the "Lease" contract were entitled
"Purchase". And deduct all or part of the calculated interest payments,
depending on the business use percentage of the car.

There probably is a discussion of this somewhere in Quicken Help (or
TurboTax Help) but I couldn't find it in a quick search.

RC
--
R. C. White, CPA
(not currently licensed to practice)
San Marcos, TX
r...@corridor.net