To be considered a fixed asset, the item must:
Now that you know how to identify fixed assets, you need to understand how to manage them. Using an example of a truck purchase we will go through the required steps to properly present the purchase on the balance sheet.
Cost | $50,000 |
Useful Life | 5 Years (60 Months) |
Placed in Service | 6/1/2019 |
JE #
|
Date
|
Account
|
Debit
|
Credit
|
1
|
6/1/2019
|
Vehicles (Asset Account)
|
50000
|
|
|
|
Cash (or A/P or Loan)
|
|
5000
|
|
|
To record purchase of pickup
|
||
2
|
6/1/2019
|
Depreciation Expense
|
833.33
|
|
Accum Deprecation Vehicles (Contra Asset Acct.
|
833.3
|
|||
To record monthly depreciation expense (50,000/60 = 833.33)
|
||||
3 through 8
|
|
Record journal entry #2 every month for the rest of the year
|
Balance Sheet at 12/31/19 | |
Vehicles | 50000 |
Accum. Depr. Vehicles | (5,833.31) |
Net Book Value | 44,166.69 |
Profit & Loss on 12/31/19 | |
Depreciation Expense | 5833.31 |
JE # |
Date |
Account |
Debit |
Credit |
9 | 1/1/2020 | Depreciation Expense | 833.33 | |
Accum. Depr. Vehicles (Contra Asset Acct) | 833.33 | |||
To record monthly depreciation expense (50,000/60 = 833.33) | ||||
Pickup is SOLD on 2/15/2020 for $40,000 | ||||
10 | Depreciation Expense | 416.67 | ||
Accum. Depr. Vehicles (Contra Asset Acct) | 416.67 | |||
To record 1/2 month of depreciation expense | ||||
40,000 | ||||
11 | Cash | 0 | ||
Accum. Depr. Vehicles (833.33*8.5) | 7,083.31 | |||
50,000.00 | ||||
Vehicles | 0 | |||
Loss of Sales of Fixed Assets | 2916.70 | |||
To record sale of vehicle |
Balance Sheet at 12/31/20 | |
Vehicles | 0.00 |
Accum. Depr. Vehicles | - |
Net Book Value | 0.00 |
Profit & Loss on 12/31/20 | |
Depreciation Expense | 1250.00 |
Gain/{Loss} on Sales of Fixed Assets | 2916.70 |
Properly accounting for fixed assets is crucial to small business. In addition to being used to help generate revenue, fixed assets are closely looked at by investors when deciding whether to invest in a company.
Contact us at www.budgetease.biz to find out how we can help you manage your fixed assets.