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DaveBarnitz
October 20, 2021
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Applying Payment to Fixed Asset

  • October 20, 2021
  • 1 reply
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I'm having some difficulty grasping the concept of Fixed Assets. I do video work, and have 2 purchases that are considered Fixed Assets.

 

One, I purchased outright for $848. I added the Fixed Asset in my chart of accounts. However, when I attempt to reconcile from my banking I try to 'match' it to the original cost. However it then double to $1696, so obviously that was done wrong. How should I 'match' the $848 up?

 

The secound Fixed Asset was purchased via loan for $2000. When I make my monthly payment for $250, how would I apply it?  Obviously not to original cost like I did above.  Do I setup a Liability loan for it?  If so, how does the original cost ever get reconciled? Seems it would just sit in limbo forever but maybe a fixed asset isn't necessarily an expense. (Sorry, I definitely do not have an accounting brain for this stuff, trying tho)

    Best answer by Rustler

    An asset is something you own and will keep a long time, since you own it it is not an expense.

     

    A fixed asset is just a name indicating it has a long life and you will expense part of that value each year of its expected life, that is called depreciation and is calculated annually (usually). See IRS pub 946 for details.

     

    So typically you set it up as a parent account and a sub account for the annual depreciation.

    When you purchase the item, the asset, you use that fixed asset account as the expense (reason) for the payment.

     

    Fixed Assets:

    >> Tractor

    >> >> accum depreciation tractor

     

    If you borrow money to buy the asset, then you also have incurred a debt. A debt is a liability account, and you create it in the chart of accounts first. Then use a journal entry to enter the asset and associated debt. debit the asset account and credit the liability account. If you also make a down payment or partial payment with cash then that payment also uses the fixed asset account as the expense (reason) for the payment.

     

    You reconcile bank accounts, not asset accounts usually. Just insure the bank account is reconciled and things will be fine.

    1 reply

    Rustler
    RustlerAnswer
    October 21, 2021

    An asset is something you own and will keep a long time, since you own it it is not an expense.

     

    A fixed asset is just a name indicating it has a long life and you will expense part of that value each year of its expected life, that is called depreciation and is calculated annually (usually). See IRS pub 946 for details.

     

    So typically you set it up as a parent account and a sub account for the annual depreciation.

    When you purchase the item, the asset, you use that fixed asset account as the expense (reason) for the payment.

     

    Fixed Assets:

    >> Tractor

    >> >> accum depreciation tractor

     

    If you borrow money to buy the asset, then you also have incurred a debt. A debt is a liability account, and you create it in the chart of accounts first. Then use a journal entry to enter the asset and associated debt. debit the asset account and credit the liability account. If you also make a down payment or partial payment with cash then that payment also uses the fixed asset account as the expense (reason) for the payment.

     

    You reconcile bank accounts, not asset accounts usually. Just insure the bank account is reconciled and things will be fine.

      D
      DaveBarnitzAuthor
      October 22, 2021

      Thanks much!  I'm using Quickbooks Online which imports my bank info. So I directly went to 'Add New' and created the Fixed Assets for the 848.00 and applied it that way. With the whole "Assets = Liabilities + Equity" do I need to do anything else for the double entry?  You said the Fixed Asset is not an Expense. Maybe QBO handles it on the backend.

       

      For the Fixed Asset with a loan, I do something similar, create the Fixed Asset, but then seperately also create the Liability, for an equal amount, correct?

       

      (Doing this baby steps, one at a time)

      C
      Catherine_B
      October 22, 2021

      Hello there, DaveBarnitz.

       

      Yes, you can record the depreciation as your next step s. Since it is annual you can do the tracking when the year ends and then enter it manually. For the fixed asset account, yes you can create a second account and then create a liability account and use it in creating your journal entries.

       

      Wit the whole process, I still suggest reaching out to your accountant so they can help you identify the next steps you might be doing. 

       

      For additional information on this, I recommend the following articles:  

       

      Feel free to mention me in your reply if there's anything else that you need assistance with. I'm just around the corner to help. Have a nice day!

       

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