The purchase of vehicles, using company or borrowed funds, for ongoing use in a company’s operations, is usually regarded as an acquisition of a fixed asset for accounting purposes. As such, they would be recorded on the organisation’s balance sheet.
This funding method gives the greatest level of control in terms of what, where and how a vehicle is procured. Outright purchase also provides a potential influx of funds when vehicles are sold.
However, funding a vehicle this way means tying-up capital in a rapidly depreciating asset. It uses money that could be invested elsewhere, perhaps in growing the business, funding stock, or reducing debts.
Outright purchase also exposes the owner to fluctuations in the car market, both for new and used vehicles. In residual value terms, this may result in an accounting profit if the sale price exceeds the net book value, but it could also produce an accounting loss if the price falls short of the net book value.
Cash flow and budget forecasts are often complicated by the used car market’s unpredictability and the range of disposal options open to companies owning vehicles. These include auctions, dealers, trade-ins, local paper advertisements or direct sales to employees.