Where is downpayment for land purchase shown on balance sheet?
by Glenna J
(Pearland, Tx, USA)
(a church) We purchased land for $850,000 after paying $15,000 down. At closing, we paid the seller $193,000 and financed the balance with a bank. I know the loan of $637,000 is recorded as Note payable (liability), cash of the initial $15,000 and then the $193,000 were expensed. I can't figure out - do I record the asset as the total purchase price at $850,000? Does the $208,000 expense get a 4 sided entry to record it as part of the asset account? Confused. Thanks for any guidance.
Congratulations on your purchase!
The purchase of land is an asset. If exchange for this asset, you gave cash and a Note Payable.
Here's how I see the entry:
Land (increase to asset).....$850,000
Cash in Checking (decrease to asset)........$208,000
Note Payable-Land (increase to Liability)....$642,000
The land is posted at the total cost. I calculated the loan amount as $850,000 minus $15,000 minus $193,000, which equals $642,000.
Land is non-depreciable, so it will stay on the books at its cost.
If you have any other questions, just let me know. Glad to help!