Simple/Smart Fixed Asset Handling in QuickBooks - Part 1

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Why Not Just use Fixed Asset Items?

Users of the QuickBooks desktop editions—Pro and Premier, mostly—often feel short-changed when they discover how limited QuickBooks' features are for handling fixed assets. Search for "fixed assets" or "depreciation" in one of Intuit's QuickBooks forums or elsewhere on the Web and you will find several discussions like these:

Does QuickBooks calculate depreciation?

No, you can either do that in a spreadsheet or buy Intuit's Fixed Asset Manager program... priced around $325 the last time I looked. 

Are you telling me I have to spend another $300+ just to get QuickBooks to calculate depreciation? 

Yes. Fixed Asset Manager is included in the Accountant and Enterprise editions, but if you have Pro or Premier you must buy it separately. Or, you can calculate depreciation with a spreadsheet or by some other means.

I have set up several Fixed Asset Items but they don't seem to "connect" to anything. I entered some test transactions for asset purchases and sales, but they did not update any fields in the corresponding Fixed Asset Items, such as the purchase and sale dates and amounts. What am I doing wrong?

You aren't doing anything wrong. If you don't have Intuit's Fixed Asset Manager (FAM) software, the Fixed Asset Item type is mostly a place to keep notes about fixed assets. FAM can update those fields, but without it, you have to manually type information into most of those fields yourself. 

But QuickBooks already has that information—it's right there in the transactions I entered! Are you saying I have to type it in a second time if I want to keep records with Fixed Asset Items? 

Yes.

Unbelievable! Sounds like I should abandon Fixed Asset Items and go back to using a separate account for each fixed asset. Uggghhh! I can do that, but I hate it... (1) sometimes I have to use Journal Entries, and I always struggle with debits and credits, and (2) I tried using individual asset accounts before I found out about the Fixed Asset Item type, and I was not impressed with QuickBooks' reporting possibilities for that approach. What a giant leap backwards in accounting technology!

These kinds of problems all go away of course if you have Fixed Asset Manager. If you do, you may not even be aware of the frustration many Pro and Premier users feel about QuickBooks' limited features for the handling of fixed assets and depreciation (also true for QuickBooks Online users, I might add).

So what are your options?

Here is a short summary of your choices for working with fixed assets in QuickBooks:

  • Fixed Asset Items. They work fine if you have Fixed Asset Manager but seem like a lame/unfinished feature if you don't.
  • Fixed asset accounts. You might call this the "accounting textbook" approach:  set up individual accounts for original basis and accumulated depreciation for each of your fixed assets, and use various transactions types (journal entries may be required sometimes) to enter fixed asset purchases, sales, gain or loss on asset sales, etc.
  • Microsoft Excel or another spreadsheet. An Internet search for "depreciation template" finds dozens of free spreadsheet templates for calculating depreciation. Most have limited real-world usefulness because they are designed to only to calculate a depreciation schedule for one asset at a time, not for all of a business' assets at once. But some are quite useful and can be used both to maintain an asset list and to calculate depreciation expenses for a specific accounting period, and you can enter the total amount in QuickBooks, usually with a journal entry.
  • Dedicated fixed asset software. Stand-alone software applications and Internet-based services (including 3rd party QuickBooks add-ons) are available for maintaining a fixed asset list (often including things like asset location data, calculating depreciation, and so on). With details for individual fixed assets maintained outside of QuickBooks, you will typically only enter an aggregate depreciation expense total in QuickBooks, after it has been calculated by the external application. Some products integrate with QuickBooks to varying degrees, reducing the amount of manual entry required.
  • The Simple/Smart method, which is a way to track fixed assets entirely within QuickBooks, using Inventory Part Items.

Huh? I've never heard of the Simple/Smart method.... what is it?

Well, that's what the rest of this article series is about.

Pros & Cons of the Simple/Smart (S/S) Method

Pros:

  1. Transactions are entered using Inventory Part Items on familiar QuickBooks forms (Checks, Bills, Sales Receipts, etc.)—no journal entries are ever required.
  2. When an asset is sold, gain or loss on the sale is calculated automatically.
  3. Inventory Part Items can represent a group of like assets such as a fleet of vehicles of the same model and type acquired in a single purchase. You can record quantities when group members are purchased, sold, or salvaged/disposed of, and thus maintain an inventory count for the group.
  4. Standard QuickBooks reports provide information about fixed asset purchases, sales, and trade-ins, including the reports necessary for income tax preparation.
  5. Opening a QuickReport for a fixed asset Item gives you direct access to all transactions involving the asset. You quickly look up details like purchase and sale dates and amounts, what assets were traded-in to acquire other assets, etc.
  6. Maintains a detailed fixed asset list within QuickBooks, without cluttering up the Chart of Accounts.
  7. Requires no additional software purchases beyond the cost of QuickBooks itself. 

Cons:

  1. Requires setting up a lot of Items—three to four for each fixed asset. For 100 fixed assets you would be adding 300 to 400 Items. While that may sound like a lot of work, you can use a spreadsheet to automate Item creation, making the job much easier than you might assume.
  2. It could "use up" your Item list capacity. If you operate a retail business with thousands of Items, and you risk running into QuickBooks' 14,500-Item limit, you may want to avoid the S/S method. Many non-retail small businesses use no more than a few hundred Items though, so adding a few hundred more to represent fixed assets is no problem.

If your business has a large number of fixed assets to keep track of—more than 500, say—you really should be using a more advanced fixed asset system anyway—Fixed Asset Manager or a Web-based fixed asset management system perhaps.

Depreciation must be calculated outside of QuickBooks. However there are several ways to automate the process, including using a spreadsheet template which calculates depreciation and prepares depreciation transactions for importing directly into QuickBooks (to be discussed in Part 5 of this article series).

Coming in Part 2...

Next time, we will see how to set up Inventory Part Items to represent fixed assets in the S/S method, with every fixed asset being represented by a main Item and two or three sub-items. As a preview, here is a fragment of the QuickBooks Item List showing a set of Items for a pickup truck:

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 cover 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.