Before starting

You have acquired an asset that can be considered a fixed asset. This article introduces the concepts of fixed assets and depreciation and explains the associated accounting entries.

It discusses the following:

• What is an asset?
• Accounting entries generated
• Recording a fixed asset in the software
• An error message is displayed on the Balance Sheet

What is an asset?

Definition of a fixed asset

From an accounting point of view, it is an asset that will be used over a period longer than the current financial year. A "consumable" supply (printing paper) does not fit into this definition because it is an expense, but a computer is a fixed asset.

There are two main types of fixed assets:

• Tangible assets are "tangible" assets such as equipment, vehicles, or real estate.
• Intangible assets reflect "intangible" assets such as software, rights or titles, or patents.

Definition of depreciation

A fixed asset is subject to depreciation, which makes it possible to recognize its loss of value at the end of the financial year. This may be due to use, wear and tear, obsolescence, or the passage of time.

This value is smoothed over the asset's useful life, which must be determined beforehand. It corresponds to the actual useful life estimated at the time of entry.

Depreciation, therefore, takes the form of a series of entries spread over different fiscal years that distribute the asset's cost over its useful life. The organization's result will be reduced yearly by the amount corresponding to this loss of value.

Accounting entries generated

Recording of fixed assets

When a purchase results in a fixed asset, the entry made impacts an account of fixed asset, not on expenses. You can find these accounts in the association chart of accounts and add them to your personalized chart of accounts from the Accounting > Settings > Accounts page.

Please take a look at this article for more information on customizing the chart of accounts.

The accounting for a fixed asset is, therefore, similar to that of an expense, except that the account.

Example of entries generated for the entry of a tangible asset

Example of entries generated for the entry of a charge

To determine the acquisition value of a fixed asset, you must exclude any costs, taxes, and discounts obtained. If you have any questions, please don't hesitate to contact a chartered accountant.

Record a depreciation

This is also referred to as depreciation, i.e., the portion corresponding to the asset's depreciation.

In accounting, an account of type Expenditures is debited according to the nature of the asset.

At the same time, an account that is the same as the one used to record the asset is credited. If this account was Fixed Assets, the account Accum depreciation is credited.

The depreciation charge for a tangible fixed asset over six years.  

Allocations are calculated on a straight-line basis: the cost of the asset divided by its useful life.
If your calculation requires pro-rata or another method, use the advanced entry.

Record an asset in the software

Recording the entries via the expense/revenue book entry module

To enter an asset follow the steps below:

1. Go to the Accounting > Book Entry > Expenses page.

2. Choose an account corresponding to an asset (category).

3. Once this fixed asset account is selected, a Depreciation box appears. Enter the estimated useful life (in years).

Upon validation, the entry will generate the following:

• An expense entry related to a fixed asset account,
• A payment, if it has taken place,
• As many depreciation entries as there are years planned.

All depreciation entries will be generated at the time of entry, one entry per year. Just so you know, you won't need to enter entries for future years.

Recording the initial balance for historical recovery

You have recorded an asset and depreciation in your previous tool. It is possible to transfer them when switching to the software via the initial balance.

To do this, go to Accounting > Settings > Opening balance page and click on the Other tab (accounting entry).

You can enter the credit/debit amounts for the account to be used, as explained above. It is your responsibility to determine which accounts to use based on the nature of the asset.

You will need to enter an amount for account Accum Depr that corresponds to the number of years that have passed as of the date of the initial balance.

The fixed asset entry is not an expense and does not impact the result; there is no contradiction in entering it in the initial balance. It is the annual loss in value that will affect the result.

For a fixed asset with a value of $300 already depreciated over 2 of the six years, the amount to be entered will be $100.

It will then be necessary to enter the following depreciation allowances (for the four remaining years) in advanced accounting entry.

An error message is displayed on the Balance Sheet

Why this message

If your asset class and depreciation class do not match (Fixed assets and Accum depreciation), a message is displayed in the balance sheet to inform you.

For example, if the depreciation is in Accum Depr - Land, the asset should be in the category Land - Operating.

Correct the entry

The account choice is made on the user's side, and it is up to you to make the corrections.

If you have any questions, we recommend that you consult an accountant.

If you detect an error, you can make the:

• A corrective entry in the advanced entry.
• A transfer between accounts from the Accounting > Settings page.

We suggest you use the asset option of the expense/revenue entry (as detailed earlier in this article). This assisted entry mode will automatically determine the correct account to use.