Simple Smart Fixed Asset Handling in QuickBooks - Part 3

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This article is the 3rd part in a series which introduces a new method for handling fixed assets in QuickBooks desktop editions. For details on implementing it, refer to the author's textbook, Simple/Smart Fixed Asset Handling in QuickBooks, by Mark Wilsdorf. 

For Part One of this series, click here.

For Part Two of this series, click here.

Fixed Asset Purchases and Sales

Entering a Purchase

Fixed asset purchases are entered the same way as any other purchase. The important thing is to select the asset's Basis sub-item on the purchase form (Check or Bill, usually):

Entering a Purchase with a Trade-In

The normal accounting assumption when a trade-in is involved, is that the un-depreciated book value (remaining basis) of the trade-in will be included in the beginning basis of the newly acquired asset. In the example below, a pickup truck was purchased for $20,000 plus an older pickup as a trade-in, so the check we enter for the $20,000 payment also needs to record the trade-in.

To enter the transaction, we need to find out the remaining basis of the trade-in. One way to do that is to get a Fixed Asset Book Values report (to be discussed in Part 4). Here is a fragment of that report, showing that the trade-in's original basis (purchase price) was $43,000 and its accumulated depreciation balance is $33,000, for a remaining basis or book value of $10,000.

Entering the Check needs to achieve two things:

1) Zero out the old pickup truck's (the trade-in) basis and accumulated depreciation balances.

This is simple enough:  we move down a few lines on the form (leaving room at the top for the new pickup), and add Basis and Accum(ulated) Depr(eciation) lines for the old pickup truck, entering amounts which are the negative of the balances shown in the report fragment above:

2) Establish a beginning basis for the new pickup truck.

For this, we select the new pickup truck's Basis sub-item on the first row of the form, and enter an amount equal to the trade-in's remaining basis ($10,000) plus the amount paid by check ($20,000), which is $30000, which results in a net amount of $20,000 Check amount:

After entering this transaction, we could get an Item QuickReport (customized to include the Amount column), to see the status of both the old pickup truck (the trade-in) and the new pickup truck:

Entering a Sale

When a fixed asset is sold outright (not traded in), two transaction entries are necessary:  one to record the sale...

...and another to zero out the asset's Accumulated Depreciation balance. To do that, we first need to find out the amount of that balance, which we could do with either of the reports shown earlier. In this case, we will base our work on the report showing the Accumulated Depreciation amount as -$18,000.

With this information we can enter a zero-dollar check (a check for a $0 amount, drawn on a bogus Bank-type account), involving the asset's Accumulated Depreciation and Depreciation Recapture sub-items. On the Accum(ulated) Depr(eciation) line we enter the negative of the amount shown on the report: the report amount was -$18,000, so we enter the opposite of that, a positive $18,000. And on the Depr(eciation) Recapture line, we simply enter the opposite amount entered on the line above it, or -$18,000 in this case. The two amounts offset each other, which is how the check ends up as a total amount of $0.00:

At this point you probably are wondering about the purpose of the Depreciation Recapture sub-item. We don't have room for a complete explanation here; so let's just say that it is part of the Simple/Smart method's automatic calculation of gain or loss on fixed asset sales.

For this example, the math works out this way:  the pickup's original basis was $30,000, and accumulated depreciation of $18,000 left it with a remaining basis or book value of $12,000. The truck was sold for $15,000 though, resulting in a $3,000 gain on the sale. Using the Depreciation Recapture sub-item (as shown above) caused the gain to be posted to an Other Income account called Gain/Loss on Fixed Asset Sales, and thus to appear in the Other Income/Expense section of the Profit and Loss reports:

Coming in Part 4...

We will look at some reports and other ways to get information about fixed assets in the Simple/Smart method.

About the Author

Mark Wilsdorf has worked with QuickBooks users in agriculture since the 1980s. He was editor of AgriComp, the first national magazine for agricultural computing, has authored books about using QuickBooks in agriculture (The QuickBooks Farm Accounting Cookbook™ series), has done consulting work for Fortune-500 businesses serving agriculture, and has been the lead developer on several software projects for developing QuickBooks add-ons. He currently writes an agriculture-oriented QuickBooks blog at QBAgCenter.com.

For proof that Mark always has at least one foot in agriculture, you might look around his office at home.... there you would find things like a folder of soil test reports, calf obstetrical supplies, a seed sample waiting on a germination test, a stack of machinery parts catalogs... and a lariat that he will never learn to use really well.

But, beyond agriculture, Mark is just a 'really smart guy,' as this new series is certain to prove to those of you who have not read as much of his stuff as I have. Over the next several weeks as we continue his installments in this new series, you should get quite a few ideas about his treatment of 'fixed assets' in ways you may have never given them thought before.