It’s important to track your business and accounting data carefully. Many times, you need accounting data for tax purposes. Some businesses have fixed assets that are important to track carefully. In this episode of MissionBusinessPodcast.com, Bernard Roesch explains what fixed assets are, why you need to track them, and how to track fixed assets in QuickBooks.
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What Are Fixed Assets
Fixed assets are basically a large purchase that provides value to your business over a long period of time, usually more than a year. Examples of fixed assets include equipment, furniture, vehicles, machinery, etc.
Fixed assets could also be major repairs or big improvements to your office. These are expenses that may not necessarily be physical assets, but are big expenses that provide value over time that you would want to capitalize in your accounting.
Why Do You Need to Track Fixed Assets
If you make a large purchase, you may not want to expense it right away all at once.
- If you expense a large purchase all at once, then that expense hits your profit and loss statement for that time period and can significantly distort your financial health and performance.
- Instead, you should determine the life of that asset and expense the cost of that asset over the lifetime.
- This spreads out the expense over the entire time the asset provides value to your business rather than all at once.
There are also tax regulations that require certain purchases to be depreciated over an extended period of time rather than expensing it all at once. For example, you would not be able to purchase certain types of equipment or vehicles for your business in December to log the entire expense for that tax year.
The IRS has certain regulations that must be met for certain types of fixed assets.
How To Track Fixed Assets In QuickBooks
The specific process depends on your current accounting system structure as well as the assets you’re purchasing. But the basics are listed below.
- When you purchase the fixed asset, you probably pay for it with cash or possibly with a loan. Set up a fixed asset account in QuickBooks when you make the purchase.
- Rather than expensing the purchase to a normal expense category, expense it to that fixed asset account. Over time, you will log the depreciation expense according to a schedule.
- For example, if the lifetime of the asset is three years, then you would expense that asset over that three-year time period.
- You can set up the expenses to happen monthly or annually depending on your accounting needs.
You would have an account called depreciation expense, which is an expense account, and expense the asset to that account. This will show up in your profit and loss report for the time period when that expense happens. When you log the expense, it should decrease the value of the fixed asset.
Need Help Tracking Fixed Assets In QuickBooks
The process is a little bit complicated. If you have a business, it’s important for you to know if something should be logged as a fixed asset.
- Use a $1,000 purchase as a rough threshold and also consider if an item will have value to your business over multiple years. This usually means it should be a fixed asset.
- Configuring QuickBooks to track fixed assets is a little complicated and needs to be done carefully.
Reach out to Bernard to discuss how to do this within QuickBooks. It’s a pretty simple process since he’s done it many times. And he can help you make sure you have what you need at tax time and also the right fixed asset accounting records for your business.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.
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