Guides

Purchase fixed assets

Fixed assets are tangible property owned by a business, such as buildings, machinery, furniture, vehicles, and equipment. To be considered a fixed asset, property must:

  • Have a useful life longer than one major accounting period (usually one year)
  • Cost more than the capitalization threshold (set either by company policy or local law)
  • Be held for productive use rather than immediate sale (inventory is not included among fixed assets)

The acquisition cost of a fixed asset is recovered over its economic life through depreciation, rather than as an expense during a single accounting period.

Create a fixed asset

Before you can enter any transaction related to a fixed asset, the fixed asset itself must be created in Manager. If the Fixed Assets tab has not already been enabled, click Customize below the left navigation pane. Check the box for Fixed Assets and click Update below the list:

Return to the left navigation pane, click Fixed Assets, then New Fixed Asset:

Complete the entry:

13%20AM

  • Item code is an optional alphabetic or numeric designation for the fixed asset.
  • Item name is the name that will appear for the fixed asset in reports and lists.
  • Description accepts detailed information about the fixed asset.
  • The Control account field appears only when a custom control account made up of fixed assets exists. Otherwise, the asset is assigned to the Fixed assets control account by default.

Click Create.

Example
Brilliant Industries is adding a packaging machine in its factory. The machine has an expected life of 10 years, so a fixed asset is created:

39%20AM

The fixed asset will show under the Fixed Assets tab with no book value:

38%20AM

Note
To this point, you have not recorded the purchase of the fixed asset. You have only set it up in Manager. Now you can record financial transactions related to the fixed asset.

Purchase a fixed asset

Purchase of the fixed asset can be recorded under following tabs:

  • Receipts & Payments, if purchased without credit from the supplier
  • Purchase Invoices, if purchased from a supplier on credit
  • Expense Claims, if paid by you or someone else on behalf of the business
  • Journal Entries, if purchase was financed by a loan

When recording the purchase of a fixed asset under any of these tabs, post the amount spent to the Fixed assets account (or the custom control account you created for the purpose) and the subaccount for the fixed asset you have purchased.

Example
The purchase of Brilliant’s packaging machine is posted, on any of the transaction forms mentioned above, to the Fixed assets control account:

19%20AM

If you purchase the fixed asset using a loan, you should also create a liability account in your chart of accounts with a name something like Loan before you record the purchase transaction. Then record the journal entry as a debit to the Fixed assets or other control account for the purchase cost and a credit to the Loan account of the same amount. Loan repayments must be posted to the Loan account. They have nothing to do with purchase cost, depreciation, or book value of the fixed asset.

Example
Brilliant Industries purchases its packaging machine on credit from the manufacturer, entering the 10,500 cost with a journal entry. The purchase cost now shows in the Fixed Assets tab register:

37%20AM

The purchase cost of the fixed asset will be combined with any other fixed assets’ costs and displayed under the Assets category on the Summary page:

Support
Subscribe to Updates

Subscribe to our newsletter and get exclusive product updates you won't find anywhere else straight to your inbox.

© 2018 - Based in Sydney, Australia but providing goodness globally