How to record the purchase of a fixed asset such as vehicles, machinery, or office equipment in Accounting Start.
Description
You should deal with fixed assets differently from your normal day-to-day purchases. Here we explain how to record the purchase of a fixed asset such as vehicles, machinery, or office equipment.
- Make sure you have the correct Fixed Assets categories
- For assets bought using a loan or hire purchase, how to:
- Include fees and deposits
- Manage repayments and interest charged
Resolution
There may be times when you purchase items that are for the long-term use of the business. You're likely not going to convert these quickly into cash and are known as Fixed assets.
Some common examples of fixed assets are:
- Vehicles (such as company cars or commercial vehicles)
- Office Furniture, fixtures, and equipment
- Machinery
- Buildings
- Land
Purchase an asset
Record the purchase of an asset using the Money Out option.
Which category do I use?
- Select a Fixed Asset category
This is because you need to show the values of the asset on your balance sheet. This is unlike normal purchases which show on your profit and loss.
We have set up the following Fixed Asset categories for you. If you have other types of fixed assets, you may need to create your own similar categories. Create new categories.
| Category code | Category name |
| 0001 | Assets – Cost |
| 0010 | Property -Cost |
| 0020 | Plant and Machinery - Cost |
| 0030 | Office equipment and IT – Cost |
| 0040 | Fixture and fittings – Cost |
| 0050 | Motor vehicle - Cost |
Asset bought using a loan or hire purchase
If you buy and finance a fixed asset with a loan or hire purchase, you’ll need to include charges at the same time as the purchase.
To help you keep track of how much you have left to pay, record your monthly repayments and any interest charged in your accounts we recommend that you:
- Create new categories accounts for record hire purchase fees.
- Record the original purchase using a journal. The journals may vary depending on whether you have used part exchange.
- Record the re-payments, including any interest charge.
Before you record the hire purchase agreement, you need to create categories to record the values. We recommend you create the following categories:
| Hire purchase | 2300 | Current liability | No VAT |
| Licences | 7301 | Overheads | No VAT |
| Equipment hire and rental* | 7302 | Overheads | No VAT |
| Hire purchase interest | 7901 | Overheads | No VAT |
If you’re already using any of the category codes above, just use different ones. We use the type, rather than the Category Code to determine where the values appear on your reports.
- From More, select Business Settings, and select Chart of Accounts.
- Select New Category.
- Enter the details and New Category.
Part exchange
If you want to part exchange an existing asset when purchasing a new one - follow the steps below. This is to remove the value of the exchanged asset from your balance sheet and record the purchase of the new asset.
Here you buy an asset using a loan or hire purchase but without part exchange.
For example:
- You buy a car for 12,000 including VAT
- In addition to this, you pay documentation fees of 50, an option fee of 25 and road tax of 150, giving a total of 12,225
- You pay a deposit of 500
- You use the Standard VAT Scheme and can reclaim VAT on the purchase
- From More, select Journals then New Journal.
- Enter the date and a reference for the journal and, if required, enter a description.
-
Enter the relevant information to record the hire purchase and Save.
For example:
| Motor Vehicles – Cost (0050) | Net value of new asset | 10000.00 | 0.00 | Selected |
| VAT on Purchases (2201) | VAT on new vehicle | 2000.00 | 0.00 | Selected |
| Motor Expenses (7300) | Document and option fee | 75.00 | 0.00 | Not selected |
| Licences (7301) | Road tax fee for new vehicle | 150.00 | 0.00 | Not selected |
| Current (1200) | Bank deposit paid | 0.00 | 500.00 | Not selected |
| Hire purchase (2300) | Total purchase price less the deposit | 0.00 | 11725.00 | Not selected |
VAT on hire purchase
If you are unable to recover VAT associated with your hire purchase, you should record the net value of the assets in the appropriate category. For instance, if you are dealing with motor vehicles, you should use the category "Motor Vehicles – Cost (0050)" to account for the net cost without VAT.
In some lease hire agreements, you can only reclaim 50% of the VAT. In this case, enter half of the VAT amount using the VAT on Purchases, category. Then the remaining VAT to Equipment hire and rental.
Sometimes you part exchange an existing asset for a new asset, such as when buying a new car or other vehicle.
When you part exchange, you need to remove the value of your part exchanged asset from your balance sheet as you no longer own it. To record the part exchange
- Record the disposal of the old asset.
- Move any depreciation you’ve recorded to your Sale of Assets category.
- Record the purchase of the new asset.
- Reduce your hire purchase liability by the amount of the asset you’ve part exchanged.
In the following steps, we'll use this example:
- You have a car that originally cost 6,000 and has depreciated by 4,000
- You buy a new car for 12,000, including VAT
- You part exchange your old car for 2,500
- In addition to this, you pay documentation fees of 50, an option fee of 25 and road tax of 150, giving a total of 12,225
- You pay a deposit of 500
- You use the Standard VAT Scheme and can reclaim VAT on the purchase
Record a journal for the purchase
- From More, select Journals, then New Journal.
- Enter the date and a reference for the journal and, if required, enter a description.
-
Enter the relevant information to record the disposal of the old asset and clear your depreciation, for example:
| Motor Vehicles – Cost (0050) | Disposal of old asset | 0.00 | 6000.00 | No |
| Sale of Assets (4200) | Disposal of old asset | 6000.00 | 0.00 | No |
| Motor Vehicles – Accumulated Depreciation (0051) | Disposal of old asset | 4000.00 | 0.00 | No |
| Sale of Assets (4200) | Disposal of old asset | 0.00 | 4000.00 | No |
-
Enter additional information to record the hire purchase, for example
| Motor Vehicles – Cost (0050) | Net value of new asset | 10000.00 | 0.00 | Yes |
| VAT on Purchases (2201) | VAT on new vehicle | 2000.00 | 0.00 | Yes |
| Motor Expenses (7300) | Document and option fee | 75.00 | 0.00 | No |
| Licences (7301) | Road tax fee for new vehicle | 150.00 | 0.00 | No |
| Current (1200) | Bank deposit paid | 0.00 | 500.00 | No |
| Sale of Assets (4200) | Part exchange value | 0.00 | 2500 | No |
| Hire purchase (2300) | Total purchase price less the deposit and part exchange | 0.00 | 9225.00 | No |
How to record payments
When you record the payment, you'll need to separate the repayment and interest values. For example, if your monthly repayments are 300, where 250 of this is a repayment and 50 is interest.
There are two ways you can do this.
- Set up a recurring bank payment. If you're using bank feeds or importing from a bank statement, simply match the payment each period.
- Create a new Other Payment transaction from your bank feed or bank statement import each month.
Whichever method you use, remember to split the transaction across separate categories for the loan repayment and the interest.
Your payment should like this for a repayment total of 300 with 50 interest.
- From Banking, open the required bank account.
- Select New Entry, then Money Out.
- Enter the Date Paid.
- If required enter a reference.
- Select Amount Paid and enter
- Enter the required information to record:
| Category * | Details | VAT Rate | Total |
| Hire purchase (2300) | Hire purchase repayment | No VAT | 250.00 |
| Hire purchase interest (7901) | Hire purchase interest charged | No VAT | 50.00 |
- Select Save.
- Once saved locate the payment in Banking and select it.
- Select Make Recurring, then complete the information.
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