A fixed asset is defined as:

An accounting term that describes tangible property used in the operation of a business such as buildings, machinery, fixtures, furniture and equipment. It does not include items normally consumed in the course of business operation or production.

A primary example of a fixed asset is your computer.  It is not something that you can deduct as an expense but rather, you can amortize it’s value over time.  Another example of this is your car.  We all know that new cars depreciate in value quickly, when you buy a car for $20,000, the next year the car may only be worth $17,000 (depending on the make and model of your car that is).  In this case, we can write off a depreciation of $3000 in the first year instead of a $20,000 for buying a car.  If we could expense new cars in full, many businesses may consider buying new cars every year!

Below are some instructions on how to enter a fixed asset into Clarity Accounting:

Let use a case study that you bought a camera for business use.  According to the tax rules of your region, you are allowed to deduct a $50 depreciation cost on the camera when you file your taxes at the end of the fiscal year.

To enter this into our online accounting software you would:

1. Go to the “Accounts” section under “Setup” on your Dashboard
   
2. Scroll down to the section where you can enter an “Asset”, in this case study, we will enter “camera” as a fixed asset.
   
3. While you are in the “Accounts” section, create an “expense account” called “Depreciation and Amortization”.
   
4. When you purchase the Camera, enter the Camera as a Fixed Asset expense.
   In order to do so, you will have to click on the “Show All Accounts” link at the bottom of your expense accounts list, see below:
   
   
5. At the end of the year, you can enter the depreciation amount as an “Adjustment”. For example, if the camera depreciated by $50/ year, you will enter a $50 “credit” (money out of an account) for the camera fixed asset account and $50 “debit” (money into an account) for the depreciation account.  This just allows you to transfer the value of the camera from one account (Fixed Asset) to another (Expenses) where the expenses can be filled as a tax deductable expense.
   

Please refer to your local tax laws for the rules regarding depreciation and amortization of fixed assets.

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Tags: accounting online, accounting software, fixed assets, online accounting software

This entry was posted on Thursday, November 6th, 2008 at 12:09 am by may and is filed under Bookkeeping, Fixed Assets, General Instructions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.