Vehicle Asset, Loan, and payments
Let me preference this with, I got my undergraduate degree in accounting, passed the CPA Exam and practiced accounting for 5 years that was 35 years ago… now I'm a software engineer. I'm also new to Simplify (used to used Quicken 18 years or so ago).
We recently purchased a new car and took out an auto loan for it. I set up an asset and a liability for the car. The liability balance matches our online account.
I can see the transaction for the asset and it looks like it debited the asset and credited something called Balance Adjustment (whatever that is). I cannot see any transactions for the Liability, which is expected per the software documentation.
We have made a few car payments on the loan and for those transactions the car payment category is debited and our bank account is credited.
Being used to working in accrual basis, I am totally confused here on what Simplifi is doing behind the scenes. I know Simplifi will not do Depreciation Expense and Accumulated Depreciation. I would had thought the setting up the loan would have automatically set up the corresponding asset? What is the debit side of the load creation? And what is Balance Adjustment, I can't find that in the list of Simplifi categories… and when Simplifi syncs with my online loan account, what entries is it making for payments, none? When loan payments are downloaded from my bank, shouldn't those reduce the loan balance, but instead its debiting an expense?
Can someone help me understand how assets and liabilities for automobiles and the related loan payments works in Simplifi?
Comments
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Hello @gskluzacek,
Thanks for reaching out. Per our Loan & Liability Tracking in Quicken Simplifi article, "When you connect your liability accounts in Quicken Simplifi, you will not see transactions downloaded into the connected liability account, but Quicken Simplifi will update the liability balance as changes are made to the balance on the bank's website." This means the balance will match what your bank shows, but you will not see those transactions in Quicken Simplifi. Balance Adjustment is just the Opening Balance of the account at creation in Quicken Simplifi. I hope this makes sense.
Thanks,
Coach Jon
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Also, the asset (car value) needs to be set up separate from the loan. More info here:
The car value needs to be updated manually. There is a planned feature request to automate the car value update. I update my car value each quarter using Kelly Blue Book values.
Simplifi User Since Nov 2023
Minter 2014-2023
Questionable Excel before 2014 to present
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Also re: "When loan payments are downloaded from my bank, shouldn't those reduce the loan balance, but instead its debiting an expense?"
The debit for the car payment is an expense because the loan payments are withdrawals from your checking account. You can set the car payments up with a transfer category if you prefer and display them in the transfer bucket in your spending plan reducing your available to spend amount.
The loan balance gets updated automatically from the bank, per Coach Jon's response.
Simplifi User Since Nov 2023
Minter 2014-2023
Questionable Excel before 2014 to present
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Yep, I had read that article and understood it hence I had said "I cannot see any transactions for the Liability, which is expected per the software documentation." in my original post. 😀 But, I think my formal accounting education is getting in the way here. I'm just trying to understand what Simplifi is doing behind the scenes.
I know this isn't Traditional Accrual based accounting, but normally when you purchase an asset and take out a loan, such as a vehicle, one would debt (increase) the asset account and credit (increase) the liability account. Instead in Simplifi, the 2 transactions seem totally disconnected. The transaction in Simplifi that creates the asset has "Balance Adjustment" as the other side of the entry. What is "Balance Adjustment"? Its not visible in the list of categories in Simplifi. Additionally, there just isn't any Simplifi transaction for the creation of the liability. Which again, I don't have aa problems with, but I would think that Simplifi is debiting and crediting something, even if we the user cannot see it.
In actuality, only part of the payment on a vehicle loan is Car Payment (expense). There is portion that should be going to Interest Expense each time you make a car payment as well - i..e, the cost of financing vs paying cash, right? I could split my Monthly loan payment to accommodate that… The disconnect for me is, if you sum up the total loan payments, that will not equal the amount financed. But I can get my head around that the non-interest portion of the car payment is not being used to debit (reduce) the liability account, but instead is going towards an expense account… 😣
Again, I'm not saying I have an issue with what Simplifi is doing, I just want to understand it, as what "appears" to be happening, goes against way I was taught accounting in college.
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I appreciate your response, but from an accounting standpoint, when you make a loan payment, one is paying down the balance on the loan. The expense portion comes in when you take depreciation on the car. I'm coming from a formal accounting background (you know, debits on the left, credits on the right), so I'm trying to understand or visualize what Simplifi is doing. I've read the articles on how to set up assets and liability accounts… but what those articles are saying doesn't align with traditional accrual basis account. LOL.
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Simplifi is a cash accounting system from what I see. It does not do accrual accounting. @Coach Jon @Coach Natalie - care to elaborate?
Simplifi User Since Nov 2023
Minter 2014-2023
Questionable Excel before 2014 to present
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@UrsulaA - appreciate the assistance, I didn't expect Simplifi to be doing accrual based accounting, its just what I'm familiar with and understand.
So we're clear my original question was not about accrual vs cash basis… it was about trying to understand what Simplifi is doing when: 1) setting up an asset, 2) setting up a liability, 3) recording a payment from your bank account on a liability, and 4) how those pieces fit and work together in Simplifi.
After all, whether its cash basis or accrual basis account, there still has to be debits and credits to every transaction and I would like a better understanding of what Simplifi is doing. 😁
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Hello @gskluzacek,
Thanks for the information! The way I usually track this is as follows:
- Add the mortgage account as a debt
- Add an asset account with the value of my home to offset the mortgage in my net worth
- Track the mortgage payment from my checking account each month as an expense
As the mortgage value goes down, and I keep my value updated in the asset account periodically, the goal would be to have a higher asset than debt. The mortgage is a debt, so you will want to offset the mortgage with the value of the asset so your Net Worth is accurate.
Here is a great help article explaining Asset Tracking in Quicken Simplifi for you to read through as well that should help with your understanding:
Let us know if this makes sense!
Thanks,
Coach Jon
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@Coach Jon , yes those steps make sense, but it doesn't explain what's happening to the various balances within Simplifi. I'm not trying to be difficult, so I apologize if it seems that way. I just want to be able to understand how Simplifi records various transactions so that I have confidence that I'm entering things correctly and so that I can best leverage Simplifi to help me get the most out of it.
I've been reading through the many Simplifi articles in the help center and I'm starting to piece things together, but I'm still not able to connect all the dots.
I've been seeing some terms in the help center articles which seem to occur quite often:
- Net Worth: assets minus liabilities
- Expense Category: decrease Net Worth
- Income Category: increase New Worth
- Transfers (between accounts): no affect on Net Worth
Do I have the correct interpretation of these terms from the Simplifi perspective? Hopefully I do, if not, hopefully you can take some time to give additional details / insights.
So, in my mind, when
- Simplifi creates a transaction when it retrieves the latest transaction data from my Bank
- or I create an Liability account or Asset account
- or Simplifi updates the the balance of a Liability account when it retrieves the latest details from my financial institution
I'm trying to understand what happens in terms of Net Worth, Expenses, Income, etc.
Let use some examples to help me understand and hopefully you can explain in terms of Net Worth, Expenses, Income terms what Simplifi does. Let's assume we are starting off with a brand new set of Simplifi accounts containing no transactions. Further assume that the activities below are the only transactions that Simplifi will capture.
- I add a brand new bank account in Simplifi with no previous/opening balance
- I open a brand new checking account and deposit $8000 and link it to the above Simplifi bank account
- I open a new credit card account with no previous/opening balance
- I add the above credit card account in Simplifi
- My paycheck is deposited into my checking account, an amount of $3500
- I buy a cup of coffee at Starbucks for $5 and pay cash
- I go out for dinner at an expensive stake house and charge $100 to my credit card
- I purchase a use car and take out a loan for $4000
- I would like to track the Loan balance which starts at $4000
- I would like to manually create asset account for the purchase price of the car $4000
- Another paycheck is deposited into my checking account, an amount of $3500
- I add a Savings account to Simplify which has a pre-existing balance of $20,000
- I make a car payment by writing a check for $150, the check clears the bank.
- I pay my credit card balance in full by writing a check for $100, the check clears the bank.
- I go to the Kelley Blue Book web site and look up the value of my used car, it has dropped by $80. I want to record a transaction that will reflect the decrease of value in the asset account.
- Simplify connects to my Bank, Credit Card company and the Financial Institution whom I have the auto loan with and downloads all activity.
So, for each of the above, can we list out what accounts, liabilities, expense categories, income categories would be affected and what the impact on net worth would be?
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Hello @gskluzacek,
Thank You for your reply. The Net Worth displayed in Quicken Simplifi is determined by the Account balances in the program. All of the actions you listed would impact the balances were they to be refected in Quicken Simplifi, and would therefore affect the Net Worth. Hope this helps with any confusion!
Thanks,
Coach Jon
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@Coach Jon , unfortunately it doesn't really help me. I guess I'm assuming that Simplifi uses Double-Entry Bookkeeping, is this a correct assumption?
to quote from the above link:
Double-entry bookkeeping is an accounting method where each transaction is recorded in 2 or more accounts using debits and credits. A debit is made in at least one account and a credit is made in at least one other account. The total debits and credits must balance (equal each other).
There are 3 major components to the double-entry method in bookkeeping. They are:
- Every business transaction or accounting entry has to be recorded in at least two accounts in the books.
- For each transaction, the total debits recorded must equal the total credits recorded.
- Total assets must always equal total liabilities plus equity (net worth or capital) of a business. Both sides of this equation must be the same (they must balance).
going back to the list of transactions I gave above, they are, as best as I can determine… Assets are Green, Liabilities are Red, Incomes are Light Green, Expenses are Pink. The categories / accounts I couldn't figure out with Simplify I've indicated with red bold text with a red boarder. These are the ones I'm hoping you, @Coach Jon, can fill in the missing pieces. Internally, Simplifi must be doing something with these unknowns. I would really appreciate it if you could tell me what.
From the Assets / Liabilities side:
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@gskluzacek, thanks for posting back!
Although we wouldn't be able to tell you what kind of accounting method is used by Quicken Simplifi from a Care Team perspective, we can advise that the net worth displayed in Quicken Simplifi is made up of the sum of the balance of all of the accounts that are added in Quicken Simplifi. Since transactions impact the balance of your accounts, they will ultimately impact your net worth. Any new accounts that are added, regardless of the type of account, will impact your net worth unless the balance is $0. This can be assets and liabilities, regular bank accounts, investment accounts, a manual cash account to track your cash, etc.
When it comes to credit card purchases and payments, the best way to track these is by tracking all of the purchases in the credit card account as expenses as they take place. The register for your credit card account in Quicken Simplifi should match the transactions that you see on the bank's website. When it comes time to pay your credit card, you'd treat the money going out of the payment account and the money going into the credit card account as Transfers. Transfers are neutral and don't impact your net worth. That's because you end up with the same amount of money (net worth) by just moving funds from one account to another. And since you've already tracked that credit card balance as individual expense transactions, you wouldn't want to count the payment as an expense as well or you'd be doubling up.
I hope this helps to clarify!
-Coach Natalie
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@Coach Natalie, Thank you for response. I really do appreciate all the responses that the coaches and other users here have provided. It is helping me understand how Simplifi works, but perhaps not at the level of detail that I'd like.
its kind of funny that you say: "Although we wouldn't be able to tell you what kind of accounting method is used by Quicken Simplifi from a Care Team perspective" — I'm curious, why wouldn't you be able to tell, and why does the perspective of "a Care Team" affect that ability? I'm certainly not trying to get anyone to divulge Quicken trade secrets, LOL 🤣
From what I've been reading elsewhere and what people have said here, it sounds as if double-entry booking keeping is not being used…. and that net worth is, as you said, the sum of all account balances. But the amounts used for those balances are taken from the financial institutions that account activity is being downloaded from.
I'm still perplexed by the fact when you create a liability account for a car loan, that there is no asset account created in the same transaction. I don't understand why one has to manually create the asset account and when one does so, the other side of the transaction is put to something called Balance Adjustment, what's that, it not a category that you can see or an account either as far as I can tell.
I guess i'm left with some doubts with regards to the statement "Since transactions impact the balance of your accounts, they will ultimately impact your net worth", for a couple or reasons: like there is no running balance for accounts, that there is no automated process to reconcile accounts (I know there is the reviewed and flag columns that can be used for this purpose, but its manual), that payment activities on loan accounts is not shown as transactions. But payments reducing the checking count balance when a loan payment is made are shown as increasing the car expense, are shown. This is in contradiction to how payments of credit cards are handled as a transfer, why wouldn't payments of car loans be considered a transfer as well. This inconsistency is part of why I'm having a hard time making sense of things.
in the Asset Tracking in Quicken Simplify article, I'm confused by several statements in there. I am paraphrasing statements from the article below…
- Asset Accounts are tracked manually so we need to update the value of the asset manually too by entering a new transaction in the account that accommodates the difference in value. What category should we use, for example when we check on the value of a car and need to adjust down its value? It's not really an expense, as no cash has been spent.
- When selling an asset, you can mark the asset account to closed, which will bring the balance of the Asset Account down to $0, while still retaining the historical data. Where does the balance go? What category or account does it affect?
- Additionally, when selling a vehicle, you will have transaction show up in your Checking Account recording the deposit. What category or account should the deposit get put in? For example, the asset account list the car at $1000, you sell it for $900, is that amount considered income? Is the $100 considered an expense?
I really like Simplifi, I think it's a great product, I'm just left with a lot of questions when I read the various articles. Unfortunately I'm one. of those people who want to understand what's going on so I can: predict what the product will do when I perform certain actions in it, and be able to validate that the results are correct (or that I've done something incorrectly). And also so that I can have faith in the product and rely on and make sense of what it's telling me.
Thanks again for your's and everyone else's continued patients with all my questions. 😁
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@gskluzacek, I will do my best to address all of your questions here to the best of my ability. 🙂
For your first question, we can't speak to designs and methods and coding from a Care Team perspective, as we are not the Product Team. We can show you how the product works and how to use it, as well as provide troubleshooting and support for issues encountered, but we can't speak to the methodology or behind-the-scenes stuff.
When it comes to loan payments not being considered a "transfer", it's because no transactional activity takes place in the loan account each month. The loan payment itself is the transactional activity and should be considered an expense. For credit cards, you want to track what you're spending money on throughout the month as it takes place in the credit card account, so also counting the payment to cover those expenses as an expense would double up.
When it comes to balance adjustments, these are neutral categories. When you add something such as an asset account and you enter the value, the way you'll see that reflected in the register is as a balance adjustment. Since asset accounts don't have transactional activity, you'd manually adjust the value by adding a dummy transaction as a balance adjustment. This won't show up as income or spending but will change the value of the asset account. Again, the Net Worth in Quicken Simplifi is determined by balances, not transactions. However, transactions are needed to manipulate the balance of a manual account. Connected accounts stay in line with the balance provided by the bank.
When marking an account as closed, it brings the balance of that account to $0. If the account is being closed because you sold the asset, you'd reflect the influx of money in whatever account it was received in. For example, if someone writes you a check for your car and you deposit it at the bank, you'd see that money come into your checking account and would want to reflect that flow of money in Quicken Simplifi. As far as the asset value being different from the sale amount, you'd have to decide for yourself how to reflect this in your finances. I personally wouldn't consider the loss an expense, but it would be a $100 loss in my net worth, which is the real-life situation.
If you'd like to see the ability to have an asset account automatically created when a liability account is created, I'd suggest creating an Idea post so other users can vote on it and our product team can review it. This would also apply to any other requests that you may have for Quicken Simplifi if what you're looking for is not within the current design. Our FAQ here goes over how to create Idea posts:
I hope this helps shed some light!
-Coach Natalie
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