How to account for a land purchase

Here's the reader question of the day:

"In accounting, how do you post a land purchase?"

Of course, I promptly turned this over to Maesz, our resident accounting expert. Here's her reply:

This is for a pure land purchase -- no buildings, fences, wells, etc (technically these must be assigned value at purchase and then depreciated).

The check for the purchase of the land decreases (credit to) cash/checking and creates (debit to) an asset of land (non-depreciable). That way it shows up on the balance sheet as an asset at cost.

The cash "received" from any mortgage increases (debit to) cash/checking; the mortgage beginning amount enters as (credit to) a liability.

The interest on the mortgage is a deductible expense (debit) and the principal payments decrease (debit) the balance of the mortgage/liability due. The "credit" side of this entry is the payment from cash/checking.

Land is a non-depreciable asset. I always just put in an asset account; "brand" it non-depreciable.

Bottom Line:
Land is an asset, not an expense.
Improvements on land have to be accounted for separate from the land.

If you need help with a specific case, check with a local accountant for details.

And if you have a small business question, we'll be glad to try to answer it. Just ask in the comments.

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