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How to account for a land purchase

By Becky McCray

Sage And Saddle signHere’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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About Becky McCray

Becky started Small Biz Survival in 2006 to share rural business and community building stories and ideas with other small town business people. She and her husband have a small cattle ranch and are lifelong entrepreneurs. Becky is an international speaker on small business and rural topics.
  • Zoom Towns: attracting and supporting remote workers in rural small towns - December 10, 2020
  • In an economic crisis, spend your brainpower before your dollars - November 25, 2020
  • Video: How to fill empty car dealership buildings for the holidays - November 6, 2020
  • How has 2020 changed the challenges rural small towns face? Tell us here - October 20, 2020
  • The Idea Friendly Method to surviving a business crisis - October 6, 2020
  • Join me for the Rural Renewal Symposium online Oct 13 - September 26, 2020
  • Cheap placemaking idea: instant murals - September 11, 2020
  • Refilling the rural business pipeline - July 7, 2020
  • Huge vacant buildings: grants to renovate? - June 9, 2020
  • Economic self defense for small towns  - June 7, 2020

March 23, 2009 Filed Under: finance Tagged With: maesz

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