A client has told me that an employee has broken a computer and has to pay for a new one by having an amount deducted from his salary each month. The computer that was broken was considered a busiess asset but never written into the books, it was brought along by the IT guy when he joined, along with other stuff and, he says, makes up part of his contribution to the business. I'm stuck where to post the salary deduction.
Of course I need to Dr net pay, but where to put the Cr? I can only think to put it in the fixed asset account, but that will eventually bring the account to zero. The new computer having been paid for out the company bank account, Dr FA, Cr Bank.
It seems right to put the salary deduction Cr to FA because there will be no cost to the company, since the employee is paying for the computer, so I shouldn't record a cost by having a Dr balance on the FA, but there will be a company owned computer with no record in the books.
Computer A - not a fixed asset as never recorded as such Computer B - a fixed asset and paid for with a posting to the bank account Employee A - making monthly payment to company to cover damage to Computer A
Pondering ..... (How was the contribution by the IT guy recorded in the books?)
Ignoring the 'pondering' bit above and assuming my understanding is correct, I would post a Dr to Net Pay and the Cr to Other Income.
Phoenix, yes your understanding it perfectly correct. As for recording computer A, it never was, individually anyway. There is a big fixed asset balance but I have been told this represents his contribution of the database and writing the software and all that IT techy stuff.
Interesting ... so the fixed asset is composed mainly of intangibles. Surprised the computer was not recorded alongside these assets. In any case, I still think as the 'damages' from the employee was unexpected and must be accounted for as 'other income'. It is, in a way, income from the 'sale' of a 'gift to the company'. It shouldn't be subjected to tax... but check with the accountant. Good luck.
