Bookkeeping for Big Purchases

Why Equipment Financing Can Wreck Your Books (If You’re Not Careful)

Whether you’re running a landscaping company, HVAC firm, construction outfit, or manufacturing shop, big equipment purchases are inevitable—and expensive. From trucks and trailers to compressors, loaders, and CNC machines, these assets often require financing, multiple vendors, and complex accounting entries.

And here’s the catch: If you don’t book these purchases correctly, your financials can quickly become inaccurate.

Poorly tracked equipment purchases can lead to:

Misstated profit and loss reports
Inaccurate cash flow projections
IRS audits or tax issues
Missed deductions on depreciation
Confusion between asset value and loan balances

In this guide, we break down how to track equipment financing the right way using proper bookkeeping methods. Whether you’re using QuickBooks, Xero, or another accounting platform, this article will help you ensure your books reflect the real financial picture.

Why Equipment Financing Is Harder Than It Looks
Key Accounts You Need to Set Up
How to Book a Financed Equipment Purchase (Step-by-Step)
Example: Booking a $50,000 Truck Purchase
How to Track Equipment Loans and Payments
Depreciation: What You Must Know
Tax Considerations for Financed Equipment
How to Automate and Stay Audit-Ready
FAQs
Final Thoughts

1. Why Equipment Financing Is Harder Than It Looks

When you finance equipment, you’re not just making a purchase—you’re entering into a long-term liability that spans multiple years and affects cash flow, tax deductions, and asset values. Yet many business owners make one of these mistakes:

Booking the entire purchase price as an expense
→ This inflates expenses and understates profits
Not tracking the loan separately
→ This makes it unclear what’s still owed vs. what’s owned
Ignoring depreciation
→ You may miss tax benefits or violate accounting standards
Using the wrong expense category
→ Leads to confusion in financial reports or misalignment with your CPA

A study from the National Federation of Independent Business (NFIB) found that nearly 40% of small business owners lack clear guidance on booking capital equipment, especially if purchased via financing.

2. Key Accounts You Need to Set Up

Before you make the purchase, your chart of accounts should include:

Account Name	Type	Purpose
Equipment or Machinery	Fixed Asset	Records the value of the purchased item
Equipment Loan	Long-Term Liability	Tracks the financing owed to the lender
Interest Expense	Expense	Separates interest payments from principal
Depreciation Expense	Expense	Tracks yearly depreciation
Accumulated Depreciation	Contra Asset	Offsets asset value over time
Loan Payable – Current	Current Liability	Reflects the portion due in the next 12 months

You can add these accounts manually or consult your bookkeeper or accountant to set them up accurately in QuickBooks or other software.

3. How to Book a Financed Equipment Purchase (Step-by-Step)

Here’s a simplified, step-by-step guide:

Step 1: Record the Full Equipment Purchase

Even if you didn’t pay in full, book the total cost of the equipment as a fixed asset.

Debit: Equipment (Asset) → $50,000
Credit: Equipment Loan (Liability) → $50,000

Step 2: Record the Down Payment (If Any)

Debit: Equipment Loan → $10,000
Credit: Bank or Cash → $10,000

Now your liability reflects the remaining amount financed.

Step 3: Record Monthly Loan Payments

Each monthly payment includes principal + interest. Split it like this:

Debit: Equipment Loan → $800 (principal portion)
Debit: Interest Expense → $200 (interest portion)
Credit: Bank → $1,000 (total payment)

Step 4: Record Depreciation Monthly or Annually

Debit: Depreciation Expense → $833.33
Credit: Accumulated Depreciation → $833.33
(Based on a 5-year straight-line depreciation schedule for $50,000)

4. Example: Booking a $50,000 Truck Purchase

Let’s say you buy a $50,000 service truck with:

$10,000 down
$40,000 financed over 5 years at 6% interest

Initial Entry:

Equipment (Asset) → $50,000
Equipment Loan (Liability) → $50,000

Down Payment:

Debit: Loan → $10,000
Credit: Bank → $10,000

Monthly Payment ($773):

$640 is principal
$133 is interest
Debit Loan → $640
Debit Interest Expense → $133
Credit Bank → $773

Depreciation (Straight Line over 5 years):

Annual: $10,000
Monthly: $833.33
Debit Depreciation Expense → $833.33
Credit Accumulated Depreciation → $833.33

5. How to Track Equipment Loans and Payments

Use a Loan Amortization Schedule

This shows each payment’s breakdown between interest and principal. You can generate one in Excel or use accounting software tools.

Reconcile Monthly

Match actual payments to your schedule. Adjust for fees, prepayments, or skipped payments.

Monitor Interest Expense

Keep interest separate from the asset value—it’s a cost of borrowing, not an investment.

6. Depreciation: What You Must Know

Depreciation spreads the cost of an asset over its useful life, giving you a tax deduction each year instead of all at once.

Common Depreciation Methods:

Straight Line: Equal amount each year
MACRS (Modified Accelerated Cost Recovery System): IRS-approved accelerated method
Section 179: Deduct up to $1,220,000 of eligible equipment purchases in 2024

IRS Equipment Life Categories:

Vehicles: 5 years
Computers: 5 years
Office furniture: 7 years
Heavy equipment: 7–10 years

Accumulated Depreciation

This is a contra-asset account that reduces the equipment’s book value over time. On your balance sheet:

Equipment = $50,000
Accumulated Depreciation = –$20,000
Net Equipment Value = $30,000

7. Tax Considerations for Financed Equipment

Section 179 Deduction

You can write off the full purchase price (not just what you paid out-of-pocket) in the year the equipment is put into service.

Bonus Depreciation

Allows 60% deduction for eligible property placed in service during the tax year, on top of Section 179.

Interest Deductibility

Business loan interest is tax-deductible—track it separately from the principal to maximize this deduction.

8. How to Automate and Stay Audit-Ready

Use Cloud-Based Bookkeeping Tools

QuickBooks Online, Xero, and Zoho Books all support fixed asset tracking, loan schedules, and depreciation automation.

Document Everything

Store invoices, financing agreements, amortization schedules, and depreciation reports digitally. Keep them organized by asset.

Create Reports Quarterly

Run your balance sheet and profit & loss statement quarterly to check for accuracy. Look for:

Equipment showing on balance sheet
Loan balance reducing over time
Interest showing as an expense
Depreciation posting consistently

Work with a Pro

Even if you manage your books internally, consult with a bookkeeping expert or CPA annually to ensure compliance.

9. FAQs

Can I record a financed equipment purchase as an expense?

No. It must be recorded as a fixed asset, not a direct expense. Only depreciation and interest count as expenses over time.

What happens if I trade in old equipment?

You’ll need to remove the old asset from your books and calculate gain/loss on the trade-in. This affects both asset and liability accounts.

Can I use Section 179 if I didn’t pay in full?

Yes. Even if you financed the equipment, you may still deduct the full cost—assuming you meet eligibility requirements and placed the asset in service during the tax year.

Should I record sales tax in the asset cost?

Yes. Include sales tax, shipping, and setup fees in the total asset cost to be depreciated.

What if I pay off the loan early?

Update your loan balance and amortization schedule accordingly. You may save interest, but still need to track the full equipment value.

10. Final Thoughts

Equipment financing can help you scale your business, but it brings complexity to your bookkeeping. By setting up the right accounts, accurately tracking loans, properly depreciating assets, and following IRS rules, you’ll keep your financials clean—and your CPA happy.

Avoid shortcuts. Improper booking can lead to audit flags, misstated earnings, and missed deductions. Instead, follow this structured approach or partner with a professional to ensure your books reflect the true value of your business assets.

Need Help With Bookkeeping for Equipment Financing?

Out of the Box Technology specializes in helping businesses track big purchases the right way. From QuickBooks setup to depreciation tracking, we’ll help you stay compliant, tax-optimized, and audit-ready.

Ready to Improve Your Bookkeeping?

Out of the Box Technology helps contractors implement job costing with QuickBooks and other platforms. Whether you’re just getting started or ready to automate job-level reporting, our experts can guide you every step of the way.

Learn more about our services at [Link to Out of the Box Technology Services Page].