I. Definition of fixed assets

Using the acronym TIME we can define a fixed asset quite easily. A fixed asset is tangible. It is a real property, you can touch it. Items such as goodwill are intangible. Goodwill is the amount that a person would pay on the real value of a business due to its good reputation, location, or name. There is no definitive amount that can be assigned to the goodwill category in any transaction, as it is a subjective value.

A fixed asset is NOT inventory! Okay, a bit of leave has been taken with this one, but otherwise the acronym doesn’t work. Inventory is not a fixed asset and should never be considered as such. Inventory is part of the Cost of Goods Sold account.

A fixed asset has a material value. At one point I had a client who tried to depreciate a $ 300 software package for ten years. If the asset is less than $ 500, view it as an expense, not a fixed asset. If it exceeds $ 1000, it must be depreciated. It can be said that the intermediate amounts can go in any direction depending on the asset itself. Ask your tax professional for the best advice.

The estimated useful life of a fixed asset is greater than 1 year. In other words, printers, computers, vehicles, and buildings last more than a year (unless it’s a Ford). Okay, that was a joke. If the asset is not expected to last more than one year, it is not a fixed asset.

II. Fixed asset cost

Go to the List menu and click on Chart of Accounts to open it. Press CTRL and N for a new account and select Fixed Asset. Ideally, this is done in the year of purchase when entering Quickbooks, if not, click on the opening balance and enter the cost of the fixed asset at the time of purchase.

I find it useful to create a fixed asset account for the item and enter the cost and other information in a subaccount below that item to help keep track of everything in a more orderly way, which helps if you have more than one fixed asset. It is important to use the full amount of the cost, not the amount financed, since depreciation is based on the total cost; we will discuss the amount actually owed later in this article.

III. Accumulated depreciation of fixed assets

Vehicles can be depreciated from 5 years after the date of purchase. Computers and certain tools can be depreciated for 3 years, as they do not usually last 5 years. Buildings can be depreciated over a period of 27.5 years. Different types of depreciation include straight line, double declining balance, etc. and they would be a subject of a new article. (Depreciation vs. Section 179 – coming soon)

Create another Fixed Assets account, again in a subaccount below the article and name it below:

Vehicle

Vehicle cost

Accumulated depreciation of the vehicle

If the item description is too long Quickbooks will abbreviate it for you, just make sure you understand what it is for, Vehicle – Acc. Dep would work just as well. Accumulated depreciation is entered as a negative figure that reduces the value of the item being depreciated. With vehicles you have to calculate what the value of that vehicle would be in 5 years, you can use http://www.bluebook.com to find a 5 year old vehicle of a similar make and model and use that figure.

In other words, if your $ 20,000 vehicle will be worth $ 5,000 in five years, you depreciate the $ 15,000 difference over that five-year period, which would be $ 3,000 of accumulated depreciation per year. (or $ 250 a month if you want pinpoint precision throughout the year. Better to use the logs to enter Accumulated Depreciation, no payee is necessary as this is not a monetary transaction here, you are just removing the value of the fixed asset and assign it to an account.

IV. Depreciation expense

The account you use to allocate to accumulated depreciation is the depreciation expense account. And again, I find it helpful for depreciation expense to be the main or main account and to create a subaccount for each fixed asset that you are depreciating so that you can keep track of the useful life of each fixed asset and the amounts that are depreciating. This will help you keep a good eye on fixed assets that will need to be replaced soon.

V. Fixed assets and accompanying loans

Most business owners do not have the capital to pay cash for their fixed assets and, in many cases, it is not in their best interest to do so. So how do you handle the loan? Go back to the chart of accounts and press CTRL N to create a new account that will be a long-term liability account. Enter the amount still owed as your beginning balance and your current date. Still using the vehicle example, it would be:

Vehicles

Vehicle loan – 20,000

Enter an invoice for the payment amount when you receive it. And check the breakdown of the interest you are paying versus what is actually going towards the beginning of the loan. Apply the principal amount to the auto loan account on the check or invoice and, if you have not created an interest account, do so. Breakdown for each item or fixed asset for which you are paying interest. This would not be the place to put your credit card interest, make sure it is in a separate category.

Interest expense 2338

Vehicle interest 350

Team Interest 888

Building of interest 1100

Credit card interest 430

Each time you write a check, the principal amount must be deducted from what you owe on the vehicle, and the account statements sent to you must be reconciled well.

Just a note for those who are financing a car through a credit card company, make sure not to record it as a credit card payment, make sure the fixed asset information is entered and accurate, otherwise you could Losing the benefit of depreciation expenses are deducted from your tax base. And keep an eye out for those fees from credit card financiers, as they tend to fluctuate wildly in everything from interest paid to fees they charge you for the privilege of paying them over the phone or online. This money is not used to pay for the vehicle and is more detrimental to your financial situation than an asset.

Several of these companies have been guilty of adding unnecessary fees to make loan repayment extremely expensive. One company in particular has a payment office in Miami and another in San Diego. Where does a customer have to send their payment in Miami? San Diego. Why? Because there is a greater chance that you may be charged a late fee, even if the payment is mailed on time. They are predators, so be careful!

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