I am doing some bookkeeping for a friend and it's the first year I've done it. Previously these accounts were prepared elsewhere, I was wondering how I get fixed assets onto the balance sheet. In 2011 she had £415 in assets and 2012 there was £311.
It's a 25% reducing balance.
This year I will need to show £233 in assets on the BS and charge £78 depn chg to the P&L.
I know how to book keep newly acquired assets, i.e. Dr the Asset x Cr Trade Creditrs / Cash x.
What do I do to put the values I need through on the BS and P&L in the 3rd year??? I am using accounting software not Excel?
Why is the value of the assets coming down on the balance sheet? It's the Accumulated depreciation that needs to be going up (unless assets are being sold?)
Do you have the opening balances from the balance sheet? If you do, the easiest thing is to enter the balances as a journal i.e. debit your assets and credit your liabilities. If you know the cost value of individual fixed assets you may wish to put in individual lines for them. You should debit the full cost of the items and have an accumulated depreciation account on the balance sheet which shows how much has been depreciated in total over the years.
Are you continuing with previous bookkeeper's software? If so the entries for the previous years may be posted and correct, in which case you will just need to journal in this years charge for depreciation, i.e. dr £78 depreciation on P&L and credit £78 charge for the year in Balance Sheet.
Why is the value of the assets coming down on the balance sheet? It's the Accumulated depreciation that needs to be going up (unless assets are being sold?)
The net book value of the assets is coming down because the accumulated depreciation is going up...
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Why is the value of the assets coming down on the balance sheet? It's the Accumulated depreciation that needs to be going up (unless assets are being sold?)
The net book value of the assets is coming down because the accumulated depreciation is going up...
Why is the value of the assets coming down on the balance sheet? It's the Accumulated depreciation that needs to be going up (unless assets are being sold?)
The net book value of the assets is coming down because the accumulated depreciation is going up...
Yes I know...
Sorry for the delay in replying. Two fun filled days of building a set of accounts from a box file of mistakes, ommissions, transpositions, misinformation and wishful thinking... No, of cause I didn't have anything better to do with my weekend!
Fixed assets are shown on the face of the balance sheet at depreciated value with the depreciation schedule kept in the notes to the accounts leaving the statement of financial position uncluttered.
If you have the previous accounts (the full set which your client should have a copy of, not the abreviated) then there will be a number next to the Non current assets directing you to further detail in the notes.
For reference you are entitled to request a full set of accounts plus the trial balance from which those accounts were produced from the incumbant accountant.
They are not obliged to pass you any information beyond that and you have no right to their permanent file on the client although some accountants can be quite accomodationg in the information that they are willing to share.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi Shan, I have another question. Depreciation is deemed as a contra asset account according to the internet. I don't recall this term from my accounting studies many years ago although I can see the logic. My software however doesn't allow me to post negative figures so I have to set it up as a liability account. Sorry if it's a daft question but by its nature a contra asset is a liability...isn't it? So anyway....say I'm right.....In 2011 the Asset in the accounts were £415 to March 2012 -£104 was charged to the P&L. What you say about just showing the depreciated value of the asset on the face of the BS makes sense to me.
It's the practicalities of using software which is also confusing things I think.
So.........the figure I am trying to get on the face of the balance sheet is the depreciated value. So I need to Dr Stock (Assets) £233.25 so The opening.............................hang on .............the penny is starting to drop......sorry for the rambling
Am I right in thinking I can either take the original stock figure of 415 and debit the assets for that amount and credit the accumulated depreciation to bring it up to date. OR I could just take the opening balance for 2012 and process a one of charge to the P&L?
must be getting late at night as affraid that I got a little lost in your description (sure its me rather than your message. Been a long day here).
Anyway, my advice is to take a step back as I think that you may be seeing the detail but losing focus of the larger picture.
Always keep in mind what the financial statements are attempting to show and what need to go where to keep the two sides of the equation in permanent balance.
The non current asset acquired quite rightly goes in the top section. Now there are two depreciations, that taken against the asset and that which goes towards making up the net profit / loss for the period.
either on the face of the accounts or in the notes to the accounts you will have the depreciation brought forwards and depreciation for the period.
Generally on the face of the balance sheet you would simply show the depreciated value with a reference to the note.
The depreciation for the period will be the same as the depreciation that has gone through the P&L.
See whats happening. The P&L goes to Net profit in the capital account.
The depreciation for previous periods will already have been incorporated into the brought forwards profit / loss.
so, the depreciation from the depreciated asset at the top of the statement of financial position matches to depreciation fed through from the P&L over the life of the asset.
That might take reading a couple of times as I know what I mean but not sure how well I've conveyed it.
The issue with the internet is that there are always people out there who relish explaining things in the most complex fashion or use alternate names for things (one persons balance sheet, anothers statement of financial position... Both the same thing, two different descriptions).
I appreciate that I may have put the above in quite simplistic terms. What I am trying to show is the nuts and bolts of whats happening.
Now looking at the scenario in question.
£415 to £311 to £233.
Now think about that £78 from a double entry perspective.
Dr Depreciation expense (to P&L which will go to Capital)
Cr FA Depreciation account (to B/S against the asset)
The asset of course was created as a Dr so you will see that the non current asset apporpionment of the balance sheet is beeing reduced at the same rate at the Net profit keeping everything nicely balanced.
The reason that I went through that long hand was to show why you cannot simply redebit the whole depreciation schedule as the previous periods depreciation is already embedded within the net profit figure.
All that you need to do is apply this years depreciation and everything should work out (its not the perfect sollution but its good enough).
The asset will be held as £311. Take £78 to the P&L and FA depreciation schedule and whilst not quite corret it will work.
Not correct you say. where be that.
Well, the original cost of the asset is lost and you are starting from an already part depreciated value with all of the depreciation to date on the P&L side already burried in net profit.
Hope that made sense.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I went to great lengths to explain why you cannot simply put the original cost of the asset in and reapply the deprecaition (because it was already part of net profit) but didn't actually tell you a way around your issue in order to hold the original cost correctly depreciated and not correct the expense.
If you know the original cost of the asset (was it the £415 or was that already depreciated) and you know the depreciated cost at the start of the year (£311 in this case) then what you need to do is restore the asset and depreciation to how it should be baring in mind that the depreciation to date is already included in net profit / loss.
At the start of the year Journal
Dr Fixed Asset
Cr Fixed asset depreciation
this is the difference between the original cost and the depreciated value. You do not go anywhere near the depreciation expense or capital accounts both of which are already correct.
What you are doing is restoring the depreciated asset back to its original value and at the same time building the historical depreciation position knowing that such is already reflected in the net profit.
In the current year you would process as normal with the depreciation for the year taken to the depreciation expense (so becoming part of net profit / loss) and processed through the non current assets to reduce the carrying value of the asset whilst not actually touching the original cost of the asset.
Different software handles the above in different ways but that is the principle of what you are attempting to achieve.Hope that makes sense. It should have been the last part of last nights message but think that I was falling asleep by the end of it and lost my way slightly,
kind regards,
Shaun.
p.s. I'll leave it to others to guide you through the answer specific to your software (I use VT so journals are easy).
p.s.2 just read through the rest of the thread and realised that in a somewhat more succinct form Liz actually gave more or less the same answer that I just did towards the top of the thread but I think that hers assumes a certain level of experience.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
thank you so much for taking the time to provide me with such in depth explanations it's very much appreciated. I think I figured it out in the end.
I don't think I did this step
"At the start of the year Journal
Dr Fixed Asset
Cr Fixed asset depreciation"
Instead I created the fixed asset account with an opening balance of £311. I think this has worked okay as the correct figures are know shown on the balance sheet and dep'n chg for the year is correct in the P&L.
I do not have an accumulated depn account on my balance sheet with solar accounts but if I were to output to Excel I could create a note to the accounts and easily calculate what this should be.
I totally get what you are saying about the Depreciation already being part of the previous year P&L Reserves / Capital account so I get that now. I think I'm on the right track now.
