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Fixed assets and depreciation
Keep a register of what the company owns, charge depreciation once a month, and take an asset out of the books when it goes.
5 min read5 steps
A fixed asset is something the company bought to use rather than to sell — a van, a fit-out, a laptop. It is bought onto an asset account, written down a month at a time, and carried on the balance sheet at what is left. The register and the ledger are kept in step by the same entries.
Step by step
- 1
Create the categories
Fixed assets › Asset categories. A category names the cost account, the accumulated depreciation account and the expense account, the method and the useful life — so twenty laptops are not twenty separate decisions.
- 2
Add each asset
What it is, when it was bought, when it was first used, what it cost and what it is expected to fetch at the end. Depreciation runs from the month it came into use, which is not always the month it was bought.
- 3
Bring in assets you already had
For an asset the company owned before it came to this system, enter what it has already been written down by. It carries on from there rather than starting its life again.
- 4
Charge the month
Fixed assets › Depreciation. Pick the month and the screen shows what each asset will be charged and its book value after. Posting writes one journal entry across every asset in use. A month can be charged only once — charging it twice would halve a profit you may already have reported.
- 5
Dispose of an asset
Open the asset and choose Dispose. Enter the date, what was received and which account it landed in. The cost and everything written off it come out of the books, and the difference goes to gain or loss on disposal.
Questions about this
Straight line or reducing balance?
Straight line charges the same every month until the residual value is reached. Reducing balance charges a percentage of what is left, so the charge tapers; the useful life still ends it. Both are set per category and can be changed per asset.
How do I record the purchase itself?
Post the supplier's bill with the line on the asset's cost account, then add the asset to the register. The bill pays the supplier and reclaims the VAT; the register depreciates the cost.
I charged a month by mistake.
Reverse the depreciation entry, the same as any other. The month can then be charged again.