I am building quite a repertoire of questions for the accountant when she
returns from holidays.
Hope someone in the meantime can help me with this one
I purchase a computer for my business and pay for it out of company funds
$3800. Should I set this up as a fixed asset or just set up an accumulated
deprecation account and depreciation expense account and credit and debit
each the amount of depreciation?
Also, could someone briefly explain the effect of fixed assets on the income
statement and balance sheet.
One final question, could someone or some people suggest possible accounting
books I could look at, I don't want to always be going to an accountant for
something that may be quite simple to address.
Ask your accountant. If you're making money, you may want to expense the
whole thing. If you're not - or plan to make even more next year - you may
want to depreciate. Depreciation simply moves the expense to subsequent
years. (Sometimes you HAVE to depreciate, but not for a piddly $3800.)
Fixed assets have no effect on the income statement. They are like any other
asset on the balance sheet, that is, they sum into "Total Assets."
Your very best course of action, bar none, is Bookkeeping 101 at your local
I don't think he can wait out a semester. Might look for a "For
Dummies" or "Made Simple" book. They won't make you an expert.
Hopefully they'll make you understand when you need to call your
professional and understand the answers.
You will have to enter the computer as a fixed asset. By doing this, it
will show up in you balance sheet on the asset side and then you
depreciate it every year. There is no effect of any fixed asset on the
income statement except for the depreciation which shows up on the
debit side of the P/L and reduces your profit. Fixed Asset increases
you asset value in the balance sheet.
Please let me know if I am clear enough. If not, I am ready to explain
In respect to materiality concerns, in most cases any asset purchases
exceeding $1000 should be booked as fixed assets with a corresponding
Accumulated Depreciation account.
Also, the IRS and the CRA have rules regarding depreciations of fixed
assets. I know that the CRA has a schedule of fixed asset classes, and
there are different depreciation rates for different types of assets.
Eg. computers at 45%, and vehicles 30%. Software on the other hand, is
usually booked as an expense.
The purchase of the fixed asset does not affect the P&L, but the
depreciaton booked at the end of the year does. When you purchase a
computer, you are exchanging one asset (cash) for another (computer),
or you are creating a liability (credit charge) for the asset.
Good books might be the For Dummies or For Idiots series of books
(though I think the name is demeaning, they are good introductions). Or
find a store that sells introductory accounting texts for community
colleges. Sometimes the college bookstores sell used books at a reduced
Stephanie Serba, ICIA
Partner, Accounting & Technology
Durham Business Outsource
Many business owners take advantage of a special election called Section
179. You may use this election to deduct 100% of the cost of your
depreciable asset in the year that you buy it. The election must be made in
the first year that you use the asset in your business.
The maximum cost that you can elect to deduct in 2004 (for example) is
$102,000, whether you are claiming this deduction for one asset or several
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