So, I have a fixed asset which I paid off with a single payment. Because it’s over a certain amount, tax laws require I depreciate this asset over time, instead of recording it as an expense during a single year. However, recording the payment of the purchase order through the Purchase Orders tab and then recording the asset as a Fixed Asset with associated Depreciation Entries would mean that I’ll have recorded the same item twice in my P/L statement.
How do I record this correctly?
First, you do not purchase anything with a purchase order. Those are not financial transactions.
Second, read and follow the Guides about purchasing and depreciating fixed assets. There are clear examples.
Correct !
Sorry, I’ll clarify.
I purchased several items that I require in order to run my business. I received invoices for those (naturally), which I recorded in the Purchase Invoices (not Orders, as I stated before, sorry). The payments for those invoices were then recorded in the Payments tab.
One of this items, due to its cost, must according to local tax laws be recorded as an asset and depreciated. However, that would mean the depreciation will be recorded on top of the already made payment for this asset. This means I’ll be recording the cost of the item twice, which cannot be right.
So, how do I deal with this? Is there some way I should record the payment for this asset so that it doesn’t appear on my balance sheet, but the depreciation transactions will?
Looks like I missed the Purchasing Fixed Assets guide. That seems to be the missing link for me. Thanks for pointing me in the right direction.
Yes, definitely. The purchase invoice for this fixed asset should be posted to Fixed assets > Specific fixed asset rather than some expense account. The payment itself should be posted to Accounts payable > Supplier > Purchase invoice number. You probably got the second part right, but did not properly post the original purchase invoice.
The result of this will be that you have added the price of the fixed asset to the Fixed assets account on your balance sheet. Periodic depreciation entries will each transfer a portion of the asset balance to depreciation expenses for the current accounting period. They will also add to the balance of Fixed assets - accumulated depreciation, which is a contra account. Eventually, the cost of the asset and the accumulated depreciation will net out to zero (or the salvage value of the item, depending on your depreciation method).
Yeah, I followed the guide from the start. I managed to get it set up correctly (both the first and second part).
Had to repair some erroneous assignments that caused the asset to appear twice, but those are corrected now. It’s now appearing correctly in the overview.