When a business purchases a fixed asset such as a lorry and finances it through a private finance company on EMI, the accounting needs to reflect the correct flow of transactions: starting from the asset purchase, recording the liability to the supplier, then compensating it through finance, and finally paying the EMI monthly.

TamilAccounting ERP is designed to handle this flow correctly by using the Fixed Asset Module, Purchase Invoice, Journal Entries, and Banking Module.

Scenario

Your business purchases a lorry worth ₹12,00,000 from Ashok Leyland. The payment is made directly to Ashok Leyland by a private finance company, and you agree to repay the finance company through monthly EMIs of ₹58,000 over 24 months, which includes both principal and interest.

Step 1: Create the Fixed Asset and Record the Purchase Invoice

First, create the fixed asset entry and then record the purchase as a payable to the supplier.

Fixed Asset:
Asset Name: Lorry 
Category: Vehicles
Value: ₹12,00,000

Purchase Invoice Entry:

Go to Fixed Assets  → New → Purchase Invoice, and enter the following:

• Supplier: Ashok Leyland

• Item/Asset: Lorry (Fixed Asset)

• Amount: ₹12,00,000

• Account Posting: Fixed Asset → Vehicles

• Credit Account: Accounts Payable → Ashok Leyland

Resulting Accounting Entry:

Step 2: Record Finance Company Paying the Supplier via Journal Entry

Ashok Leyland is paid by the private finance company, not directly by your business. You need to reflect this adjustment in your accounts using a journal entry.

Journal Entry (Finance Company Payment on Your Behalf):

Go to General Ledgers→ Journal Entry → New Entry, and enter:

Step 3: Record EMI Payments Monthly from Banking Module

Every month, you repay the finance company via your bank, with each EMI consisting of a principal portion and an interest portion.

Example EMI: ₹58,000

• Principal: ₹50,000

• Interest: ₹8,000

Bank Payment Entry (for EMI Payment):

Go to Banking → New Payment, and enter:

• Bank Account: Choose the bank from which payment is made

• Supplier: Finance Company

• Payment Amount: ₹58,000

• Reference: Lorry Loan EMI – Month 1

• Split the payment into two allocations:

  • ₹50,000 → Loan from Private Finance Co. (to reduce principal)

  • ₹8,000 → Interest on Loan (Expense Account)

Resulting Accounting Entry:

You will repeat this process for each month until the loan is fully paid off.

Summary of Accounting Flow in TamilAccounting ERP

Final Notes

• Ensure your Loan from Private Finance Co. account is grouped under Secured Loans (Non-Current Liabilities).

• The Interest on Loan account should be placed under Indirect Expenses or Finance Charges.

• You can optionally automate recurring EMI reminders using task alerts inside the ERP system.

• Use reports to track outstanding loan balance and total interest paid.

This structured method ensures your asset records are accurate, supplier payments are correctly accounted for, and finance repayments are systematically tracked