It is necessary for your business to track fixed assets cautiously and properly. In this blog, we would like to explain what fixed assets are, why you need to track them, and how to do that in QuickBooks.
What are Fixed Assets?
A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses to generate income. Fixed assets are basically large purchase that offers some incentive to the business over a long period of time, typically over a year. Fixed assets appear on the Balance Sheet under property, plant, and equipment (PPE) including equipment, furniture, vehicles, machine, etc. Sometimes, big repairs or improvements to your office are considered fixed assets.
For what reason do you need to track fixed assets?
Obviously, you do not want to expense your $2,500 standing desk all at once.
If you expense a large purchase all at once, it could hit your profit or loss statements for that time period. It can significantly distort your financial health. Instead, you can determine the lifetime of the assets and expense the cost of that assets over the lifetime. This way spreads out the costs over the entire time and could assist you to calculate the remaining value at the end of its lifetime.
How to track fixed assets in QuickBooks?
Based on your own business as well as the assets you are purchasing, you will have a particular process. However, when tracking fixed assets in the QuickBooks system, you should follow some listed basics:
Regardless of whether you purchase the fixed assets by paying for them with cash or a loan, you need a fixed asset account in QuickBooks when you purchase.
In case you borrowed money to buy that asset, you also need to create a long-term liability account to record the total loan amount.
Rather than expensing the purchase to a normal expense category, choose the fixed asset account.
Throughout its long lifetime, you will log the depreciation expense. You can also set up a schedule or manually enter depreciation expenses depending on your needs.
You also need an account called depreciation expense account, which appears on the Profit and Loss statement, to expense the asset. It could show the reduction in the asset value whenever the depreciation occurs.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
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