Instalments on a financed truck
How a transporter records a truck bought on finance: the asset and the loan, each monthly instalment split into capital and interest, and depreciation.
By Achekam · · 5 min read · For Logistics businesses in South Africa, Nigeria, Kenya
Few transporters pay cash for a truck. The usual route is an instalment sale, hire purchase or asset finance agreement with a bank or the manufacturer's finance arm: a deposit, then a debit order every month for several years. The truck goes to work the day it is delivered; the paperwork follows it for years.
The common mistake is to treat the monthly debit order as an expense called "Truck finance". It feels right, because money leaves the bank every month, but it overstates costs, ignores the truck on the balance sheet and leaves the loan invisible. This article shows how a transporter in South Africa, Nigeria or Kenya can record a financed truck in Achekam so the asset, the debt and the true cost each appear where they belong.
The asset at cost and the finance as a liability
On the day the agreement starts, two things happen at once: the business acquires a truck, and it takes on a debt.
Each business has its own chart of accounts, and accounts can be added, renamed or switched off. Make sure you have:
| Account | Type | Holds |
|---|---|---|
| Vehicles at cost | Asset | The truck's cost |
| Asset finance: [lender] | Liability | What is still owed under the agreement |
| Finance charges on vehicles | Expense | The interest part of each instalment |
Record the opening position with a manual journal: debit Vehicles at cost with the truck's cost, credit the finance liability with the amount financed, and credit the bank with any deposit you paid. A business can post manual journals, and an unbalanced one is refused, so the cost must equal the finance plus the deposit.
Then add the truck to the register. A fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance, and dispose of them with the profit or loss posted. Use the cash price of the truck as its cost, not the total of all instalments; the extra in the instalments is interest, which is a finance cost, not part of the truck. Agree with your accountant how the register entry and the opening journal fit together, so the cost is not recorded twice.
Splitting each instalment into capital and interest
Each instalment does two jobs: it pays the month's interest and it repays part of the amount borrowed. Early in the agreement, most of the instalment is interest; towards the end, most of it is capital.
The lender's amortisation schedule, or the monthly statement, shows the split. Ask for the schedule when you sign. With it, each month's entries are straightforward:
- Post a journal for the month's interest: debit Finance charges on vehicles, credit the finance liability.
- When the instalment leaves the bank, match it against the finance liability.
The net effect is that the liability goes down by the capital portion only, and the income statement carries only the interest. If the instalment includes other charges, such as a monthly admin fee or credit life cover, put each on its own line in the first journal and its own expense account.
The debit order on the bank statement
A business imports bank statements as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053, and each import is checked for a complete balance. Bank lines are matched by suggestion and a person accepts each match; a line not yet in the books becomes a suggested journal a person approves.
When the instalment's debit order appears, approve it against the finance liability, not an expense. Because the interest was already moved into the liability by the month's journal, the whole debit order now belongs there. Name the lender and the truck's registration in each description; a fleet with several financed trucks and one lender will otherwise have a statement full of identical debit orders.
If a debit order bounces and is re-presented, or the lender charges arrears interest, record those as they happen, with the lender's letter on file.
Depreciation separately each month
Depreciation and finance are two different things, and they are recorded separately. The register depreciates the truck monthly, by straight line or reducing balance, with a journal each month, regardless of how it was paid for. A truck bought with cash and a truck bought on finance depreciate the same way.
So a financed truck produces two monthly costs: depreciation on the asset, and interest on the loan. Together they are the true monthly cost of owning the truck, before fuel, tyres and maintenance. Choosing the method and useful life is covered in depreciating a transport fleet. If a truck is written off before the agreement ends, the asset and the debt part ways, as explained in when a truck is written off.
Matching the lender's statement
At each month end, the finance liability in your books should equal the balance on the lender's statement. The trial balance shows each account for all time, for a period or at a date, so run it at the statement date and compare.
Differences usually come from:
- an interest journal posted with last month's figure;
- a debit order approved to an expense account instead of the liability;
- a fee or insurance charge on the statement that was not recorded;
- timing, where the lender's statement date differs from month end.
Find and fix each one before closing the month. Months can be soft-closed, hard-closed and locked, and a closed month refuses postings, so corrections after the close go into the open month.
The accounting standard behind the loan side is IFRS 9, and the IFRS Foundation's summary of IFRS 9 Financial Instruments explains how an entity recognises, classifies and measures financial liabilities such as this one. Tax on the instalments and the truck is a separate matter for your tax adviser.
Setting it up this month
Collect the agreement and the amortisation schedule for each financed truck, open the accounts, post the opening positions, and from next month follow the two-step routine. When the lender's statement and your liability agree, the truck finance is under control.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
