Various Payments over time for Asset purchase

Lt1014Lt1014 Member Posts: 3

Hi, I'm hoping this is an easy questions but I'm new to this accounting stuff

I bought an asset (a website) back in Feb 2019. I made a number of payments over time to purchase the asset through:
1. Personal funds (the deposit and a couple of payments came from my personal bank account)
2. Funds from the business.

I spoke to my accountant who said to create an asset and a matching liability and then post the payments to the liability since payments were done over 13 months.

So I created an asset category under "Property, Plant, Equipment" called "website".

A few questions:
1. Under what heading should I create the liability account? "Expected Payments to Vendor" or "Long Term Liability" since payments were made over a 13 months?
2. How do I create the asset and it's matching liability?
3. How do I post each payment (I assume I have to create a journal transaction) but what do I credit and what do I debit? )

Since I'm new at this if someone could explain this to me at a 2nd grade level, that would be really helpful :)

Thanks so much everyone!


  • Kristian_GKristian_G Administrator Posts: 56 admin

    Hey @Lt1014!

    Good questions! These kinds of things are definitely on the more difficult/advanced side in Wave, so kudos to you for taking this on. The good news is that, despite what we're doing is a bit more advanced, the individual steps themselves are all pretty simple and straight forward. I'll read through your post now, and address your question as I encounter them.

    You were spot on with your first step in creating a new asset account for your website, however, I would personally recommend creating the asset under "Other Long Term Asset" rather than "Property, Plant, and Equipment." If you'd like to do that, you can simply create a new one under "Other Long Term Asset," and archive the old one under "Property, Plant, and Equipment."

    At this point, I'm going to post a really good resource here for you, which is this Help Center article on accounting for loan repayments. I realize that you're not really accounting for a loan here, but there are some very helpful points in this article related to recording asset purchases and recording payments to a loan (or a recurring liability) using journal entries. It also goes over how to set the balances for such accounts (in short, you can do so by creating a transfer transaction between your bank account and the asset, or through a journal entry that credits your bank account, and debits the asset account).

    Now, onto your questions:
    1. I would create the liability account under either the "Other Short Term Liability" (if these are bill payments), or under "Loan and Line of Credit" (if these are payments to a loan). Just as an FYI, short term liabilities refer to payments that are owed/due within the year, while long term liabilities aren't due for a year plus.
    2. As I said above, you can create the asset on the Accounting > Chart of Accounts page under "Other Long Term Asset." The liability account can be created under "Other Short Term Liability."
    3. As for your third question, you can post payments by creating a journal entry that debits the liability account, and credits either your business' bank account, or your personal bank account (whichever one was used to make the payment for that month).

    I hope that makes sense! Good luck :)

    edited April 21, 2020
  • Lt1014Lt1014 Member Posts: 3

    @Kristian_G thank so much for this. Super helpful! I think i'm just missing 1 step in here. I created my "Other Long Term Asset" account called "Website". I created a "Long Term Liability" account (because payment was over 13 months) called "Website Seller Financing". I also now understand Step 3 on how to post each payment. But...

    How do I post the initial purchase transaction? Say it was $20K website. I want to make sure I do this correctly...I would create an initial journal entry that will Debit the "website" asset account for $20K and then a matching Credit of the Liability account "Website Seller Financing" for $20K? Like this:

    I want to make sure I'm not doing it backwards.

    Thanks so much!

  • ConnorMConnorM Member, Administrator Posts: 1,229 admin

    Hey @Lt1014! Happy to confirm that that's definitely the right order for the journal entry to be in!

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