Deal with FA Opn Bal & Disposal & its STARTING BALANCE EQUITY balances

[kamittals]

Hi,

I am a freelancer working from home and i have started to maintain my personal accounts in Manager since a month. I am not a professional in Accounting but, you can say im just a novice in this area of accounting. I’m stuck in posting an entry related to my Fixed Asset. I need to know the correct method to enter the below scenario in Manager Software.

Now, i’m having few old equipments like computer, laptop, printer and electronic components with me which are all little outdated. I’m planning to dispose it for whatever price i’m getting for it reasonably. I don’t remember the price i bought those assets at but now just to make an entry i’m ok with taking it with a reasonable value just to show in the books of accounts.

The Scenario Is:
I sold a Desktop PC to my ABC Customer for INR 3000/-. I have followed the below procedure after referring a lot of articles published in this forum on this topic. I followed the below steps:

Created an Account named “Computer Equipments” (as Control Account) under Fixed Assets in COA

Created “Desktop PC” under Fixed Assets from the main screen under the Control Account “Computer Equipments”

Under “Settings” → Starting Balances → Set Date → i’ve updated date as 01/APR/2018

Under “Computer Equipments” → blue link on debit side → Edit button next to “Desktop PC”
Purchase Cost @ INR 8000/- (Roughly) → then Update

Under “Fixed assets, accumulated depreciation” → blue link on debit side → Edit button next to “Desktop PC” → Accumulated depreciation @ INR 6000/- (Roughly) → then Update

Now, under Balance Sheet,
“Starting balance equity” is showing value as INR 2000/-
“Computer Equiptments” is showing value as INR 8000/-
“Fixed assets, accumulated depreciation” is showing value as INR -6000/-

After posting a Cash Receipt entry for the asset assuming it is sold at INR 3000/- to ABC Customer:

This is the Balance Sheet Summary as below POST Cash Receipt Entry:

Now under Fixed Assets → “Edit” button next to “Desktop PC” → Selecting “Disposed fixed asset” → Entering the Receipt creation date → then Update.

Here is the Summary Screen after Disposal Of Fixed Asset.

Here this “STARTING BALANCE EQUITY” is not getting NIL.

What step am i missing here. Please suggest the proper method i need to follow for such a scenario.

Retained Earnings and Cash on hand is showing correct value.

Instead of “Fixed assets - loss on disposal” with (-) negative value in “Expenses”, it could have been posted as “Fixed assets - profit on disposal” under “Income” head.

“STARTING BALANCE EQUITY” should have become NIL but not happening.

Kindly guide me if i am missing any step or do i have to post any additional entries to nullify the starting Balance Equity for the selected Fixed Assets.

A video clip or a detailed step with screenshots on the same would be appreciated as i have been struggling to solve/understand how to tackle this scenario.

Thanks a lot in Advance

Ka Mittal

[Tut]

It looks like your asset cost and depreciation are not going to the same account. You say you created a custom control account, Computer equipments under Fixed assets, but Fixed assets doesn’t show as a group. Your depreciation is not offsetting your asset cost.

[Brucanna]

I’m not sure what @tut is referring to in his post - as you have only created assets under your alternate Computer Equipment control account and not under the default Fixed Assets control account then you wouldn’t expect to see that group, also Accumulated Depreciation doesn’t offset against Fixed Assets in the balance Sheet.

So far all your entries look perfect, but to answer your two direct questions.

1. Starting Balance Equity is showing 2000.
   This is because your entered Starting Balances don’t balance, So far you have entered a Debit of 8000 and a credit of 6000, the balance of 2000 needs to be entered as a credit into an Equity account such as “Capital Contribution” or similar. There are some Guides about various equity account setups.

2. Instead of “Fixed assets - loss on disposal” with (-) negative value in “Expenses”, it could have been posted as “Fixed assets - profit on disposal” under “Income” head.
   By default, Manager always assumes the “loss on disposal” position (expense) and doesn’t differentiate between loss or profit disposal when posting to the P&L. However, if you prefer to see it under Income, then under Settings > Chart of Accounts you can edit the account to read “profit” and re-allocate it to be an Income account.

[Tut]

@Brucanna

I’m not sure what @tut is referring to in his post

I was referring to this statement:

@kamittals

Created an Account named “Computer Equipments” (as Control Account) under Fixed Assets in COA

I interpreted that to mean the Computer Equipments account was a daughter account in a Fixed Assets group. To say one account is “under” another implies (to me at least), that its balance is a component of a higher-level in the chart of accounts, just as @kamittals’s next sentence stated:

@kamittals

Created “Desktop PC” under Fixed Assets from the main screen under the Control Account “Computer Equipments”

and the Desktop PC does, in fact, show up in the Computer Equipments account. It was difficult to follow the rest of the explanation on what had been done.

When I said,“It looks like your asset cost and depreciation are not going to the same account,” I should have written “subaccount.” Sorry for that confusion.

Because I misunderstood @kamittals’s explanation, this looked to me like a mistake in the setup of the chart of accounts rather than what it is, a mistake in the starting balances.

[kamittals]

Hi Tut…glad and happy to hear from you…

I’ve followed what was said in the forum guides and some other forum topics for this kind of scenario but, in my case, i don’t know where the mistake is or if i’m missing something here. Everything goes well except the “Starting Balance Equity” not nullifying on it’s own. I don’t know if there is any bug in the software somewhere or any step is being missed by me…

When i Tick next to "Disposed fixed asset option, under Fixed Assets from "Main Menu page, i was assuming that this will nullify the “Starting Balance Equity” to a Zero value. As the Fixed Asset is getting Disposed completely, the value of that Fixed Asset should also become Zero under “Starting balance equity” is what, was my understanding.

Below are few Screen Shots for clarity as what i have done:

How would you post this scenario in Manager Software if you had to post one? I request you if you could try with this scenario in your demo database and please put some inputs on the same in posting it in a correct way.

Thanks & Regards

[kamittals]

@kamittals

Hi @Brucanna …glad and happy to hear from you…

You are right @Brucanna, i too somewhat feel that i might have followed the procedures correctly but, i’m not very good at accounting so because of which i get confused between Debit and Credit entries. Thats the reason i’ve switched to “Manager Accounting Software”. It’s interface looks cool and transparent which i liked. If the postings are correct then the Summary page displays accurate balances. I use it for most simple transactions and i don’t have any complicated accounting requirements.

I’m just stuck with passing this scenario in Manager Accounting Software as it’s not reflecting the correct Balances in my Summary page correctly under Equity → Starting balance equity

@Brucanna

Starting Balance Equity is showing 2000.

Can you just help me in finding those links matching this scenario. I tried a lot before creating this thread and could not be successful. Sorry for troubling you on this.

@Brucanna

Instead of “Fixed assets - loss on disposal” with (-) negative value in “Expenses”, it could have been posted as “Fixed assets - profit on disposal” under “Income” head.

I thought that the Manager Software will automatically sense the transaction and create and place the amounts in respective head of accounts. Anyways, a (-) value under Expenses is also a positive and an Income. This is also ok for me but, i just thought if there was such an option inbuilt in the software…

Thanks & Regards

[Brucanna]

@kamittals

Can you just help me in finding those links matching this scenario.

Your Starting Balances should look like this:

So the Summary tab will look like this:

After the disposal the Summary tab looks like this:

[kamittals]

Hi @Brucanna,

Thanks a lot for letting me know the above scenario of mine in such a detail. Now after looking at the screenshots, I’ve got to understand how this works. Really Thankful to you.

Just another doubt i had in this regard is that, since I’ve disposed the asset in the books of accounts on any particular date, will this “Capital Contribution” remain there? I believe that if an asset is sold either with a profit/loss, once disposed, then that should not be considering as "Capital Contribution" anymore right? The “Capital Contribution” should be nullified.

Then, under which Accounting Head can that amount be moved to?

As Assets - Liability = Equity
Assets = Liability + Equity

I understand that the amounts has to be tallied and adjusted. Hence, under which account can that INR 2000/- be adjusted if it has to? If we create any Account, will the Manager Software automatically do the needful or we need to pass the entries manually?

Not too good in accounting and hence seeking your help in this regard. I don’t know if i’m talking sense here.

Once again, Thanks & Regards

[Brucanna]

@kamittals

Just another doubt i had in this regard is that, since I’ve disposed the asset in the books of accounts on any particular date, will this “Capital Contribution” remain there?

Yes it will remain there. You need to see the transactions from the beginning as if you had always used Manager and not from the end via starting balances to see the final position.

In the beginning you would bank 8000 into the business as capital

Then you would spend that 8000 to purchase the laptop

Over the next period of time you would depreciation expense of 6000 for that laptop

Then on disposal after receiving 3000 you would have

So strictly speaking your Starting Balances should have matched the Balance Sheet balances above.

@kamittals

under which account can that INR 2000/- be adjusted if it has to?

It doesn’t have to adjusted to anywhere.

@kamittals

will the Manager Software automatically do the needful or we need to pass the entries manually?

Manager never does any transaction automatically, so they all need to be entered manually or via bank statement import.