We have just bought our company a car. In this case we are going to assume that this car was paid in full right away and the useful life of it has been set to 5 years (60 months). Car purchase price was $12,000 and date it was bought, was March 1, 2011.

Accounting Entries

The car is an asset to your company. We are going to add the car under Assets – Vehicles – Debit $12,000. Next we need to decrease Cash – Credit $12,000.

Now we have to calculate the depreciation for the car. The car will be depreciated for 60 months, so we will divide paid amount with months (60) – 12,000/60 = 200. This will be the amount that will be depreciated into expense every month for 5 years. The $200 will be added to Depreciation Expenses (Depreciation Expenses – Debit 200) and Accumulated Depreciation (Accumulated Depreciation – Credit 200). Adding the monthly depreciation to Accumulated Depreciation on your balance sheet decreases your Assets thus reflecting the value of the asset (over the periods it loses its value as its being used and gets older).
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