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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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.
