Updated: Jan 5, 2021
The most common bookkeeping mistake in automobile lease is when a company elects an accounting policy as a financial lease rather than an operating lease.
If a financial lease is used to enter the full amount of the monthly installment payments as an expense in "Automobile-Interest Expense | Cash” and the annual balance sheet is not properly adjusted before the end of the year journal, the annual balance sheet will be unbalanced.
To correct this mistake, we need to find out if some of the cash paid are made up of interest cost by referring to the loan amortization schedule that can simply be downloaded on Google. The downloaded amortization schedule automatically calculates the monthly interest cost amount until the original amount becomes fully amortized or zero. The remainder will be amortized/reduced from the principal balance and these two accounts will be entered as debit inputs.