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Car rental accounting setup

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  • Car rental accounting setup

    kindly advise on how to setup chart of account for car Rental business in peachtree /sage 50.

    we have 20 cars, lets say all of them are on rent.

    these cars will be setup like inventory item ? if so, how will i treat if they returned back?

    any idea ?

  • #2
    hi emad! the cars that you rent out to customers will be classified as plant assets or fixed assets. that's because they will be used in the business for a long-term (> 1 year) and will generate revenue for the business.

    you can classify these cars in a 'Rental Cars' category under plant assets/fixed assets. since you do not transfer the title of the car (or the ownership) to the customer when you rent out these cars (at least that's what I assume) you will not make any accounting entry for this or when the car is returned. why? because all the time the car was yours i.e. you owned it all the time, you just let someone use it for a fee. further you will apply depreciation on these cars normally like for other fixed assets. use MACRS or other depreciation rates that are the norm for your industry. you will need to ask an accountant for the most tax advantageous depreciation rates to use for your business i.e. which give you the maximum short-term tax savings. You will also need to ask your accountant what kind of treatment to apply for charges recovered from customers for any unintentional/intentional misuse of the car.

    1. When you rent out the car you will make the following entry:
    Dr. Accounts Receivable
    Cr. Rental Revenue or Rental Fee Earned

    2. When you receive the car back from the customer :

    3. When you receive payment from the customer:
    Dr. Cash/Bank
    Cr. Accounts Receivable

    4. When you incur expense on rental cars for their NORMAL servicing/repairs & maintenance:
    Dr. Repairs & Maintenance Expense (this alongwith depreciation expense is your COGS)
    Cr. Cash/Bank or Accounts Payable

    5. When you incur expense on MAJOR service/repairs/maint of these cars (like replacing engine or anything that's prolongs life of the car):
    Dr. Fixed Assets (Rental Cars)
    Cr. Cash/Bank or Accounts Payable

    6. When you depreciate these cars:
    Dr. Depreciation Expense
    Cr. Accumulated Depreciation

    If you need to ask anything else let me know. If you want a complete Chart of Accounts I can post that too.
    Last edited by Muhammad suhaib; 10-19-2013, 01:59 AM.


    • #3
      Just what I was looking for.