New Signage

by Pam McDonald
(Brownwood, Texas)

I have put a down payment of $670.50 on a new back-lit sign. I will pay $212.66 for 36 months.

I was told to expense the payments and at the end of 36 months, to depreciate it.

I am uncertain as to how to enter this (these) transactions. Will you help?

Hello Pam,

Thank you for your question.

Are you putting the signage into immediate usage? Typically, you start depreciation when the asset is put into use not at the end of the loan. In your case, I believe you can start depreciating the full price of the asset as long you record the loan at the time of the initial payment. For example:

Your initial payment of 670.50 would be recorded as:

CR 670.50 Cash
DR 670.50 Signage (asset)

While your outstanding loan of 7655.76 (212.66 multiplied by 36 months, assuming no interest) would be recorded as:

CR 7655.76 Signage Loan Payable
DR 7655.76 Signage

This would give you a new asset total of 8326.26 to start depreciating the year you put it into service.

Meanwhile, your loan payments each month until paid off would be recorded as:

CR 2551.92 Cash
DR 2551.92 Signage Loan Payable

If you would still like to expense the payments and depreciate at the end of the 36 months you would do this as follows:

The initial transaction would still be:

CR 670.50 Cash
DR 670.50 Signage

Then each payment would be recorded as:

CR 212.66 Cash
DR 212.66 Signage

And at the end of 36 months, when the signage account balance reaches 8326.26, you would start depreciating.