 QuickBooks Online 2024. Record purchase of fixed asset, otherwise known as depreciable assets, property, plant and equipment or PP and E. Get ready and some coffee because we get work done on time with QuickBooks Online 2024. Here we are in our get great guitars 2024. QuickBooks Online sample company file we set up in a prior presentation. We're going to be opening up our major financial statement reports like we do every time reports that are on the left hand side. We're in the favorites right click it on the balance sheet open link in new tab right click on the profit and loss open link in new tab and the trial balance right click open link in a new tab. If you don't have the trial balance in your favorites you can search for it up here but I think it deserves to be there if you don't have the balance sheet and the profit and loss in your favorites then you're just wrong okay it's not a matter of opinion those two are everyone's favorites those are the main financial statement reports first a word from our sponsor yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is better than their stupid stuff anyways like our trust me I'm an accountant product line yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions if you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com so get over it and fix it so I'm going to close up the hamburger on the second tab and we're going to change the range just for the first month of 2024 first month of operations in the new software a one oh one two four tab oh one thirty one two four tab run it to refresh it we'll then tab to the right close up the hand boogie and we'll range to the change oh one oh one two four tab twelve thirty one two four tab running it to refreshing it again nothing's in it and we'll tab to the right close up the hand boogie again and alter the base one more time oh one oh one two four tab uh not twelve oh one thirty one two four and run it to refresh it that's what we have thus far let's go to the balance sheet give a quick recap of what we have done we started up our new company file in QuickBooks we laid down the foundational items typically found in the cog up top like the company preferences and the lists chart of accounts as well as the products and services contacts such as the customers vendors and employees and now we're thinking we also entered our beginning balances imagining we're pulling this information from a prior accounting system and now we're doing our first month of data input imagining the first steps we do are those often done for a new business and that would be or one that is growing so we have transactions also that aren't likely to be part of the normal cycle because we first have to set up the business making purchases such as purchasing the inventory and property plant and equipment in order to be purchasing inventory and property planting equipment we first need the cash so how did we get the cash on the books if you're a new business well you could take out a loan in which case you'd be the other side would be going to liability that's how you could finance the business you could put it in yourself as the owner or you could take on another owner possibly being a partnership and see if you can get some investment from another owner or incorporate in which case you can get it from another owner in the form of them purchasing the stocks for example now once we have the money we we then now have our checking account have stuff in it we took some of that money and we put it into a short-term investment just to hold on temporarily until we're going to be spending it and now what we want to do is start making our purchases of the fixed assets note that the fixed assets you can think of as basically investments the their long-term assets that you have in the business they're the things they're going to help you to be generating the revenue now the fixed assets is another area where we would think well is there a normal form for the purchase of fixed assets in our plus button up top no there's not right there's not a normal form for the purchase of the fixed assets you might be saying well it's a check form or an expense form or possibly a bill form we might be able to use those forms but notice that the purchase of the fixed asset is not typically something that we do as a normal cyclical process when we think about the expense form check form or bill form the thing usually that comes to mind on those forms would be us paying for expenses utility bill the the supplies the inventory that we're purchasing as a normal type of cycle system when we think about buying a building for example which is the most extreme example or land well that doesn't happen all the time if we were a guitar shop and we sell guitars we don't always buy buildings so that's not something that we typically have a form for so then the next question is well how what form should we use to be recording something like the purchase of a building well if cash is affected we can use the cash forms like the expense form and the check form or the check register or the the bank feed system however sometimes you don't pay cash right possibly you financed the purchase of equipment in that case you might have to default say to a journal entry now in this first month we're going to do more more systems where we have cashed based systems and then in the following month we'll do some more that is going to be accrual or do not have the cash base so in our case we actually got the cash here that's why we put it here so we can pay the cash for the purchase of the equipment so we already basically took out the loan we didn't take out the loan to finance the equipment directly but took out a business loan got the money and now we're going to spend it on the equipment so equipment's a little bit different as well because it's going to be a fixed asset a lot of times many small businesses like to think i want to be on a cashed based system and they feel like they don't want to do any accrual thing because the cash based system might be the easiest thing to do and if you have the capacity to do that that might work great because then you can use the bank feeds to record transactions as they come through on a cashed based system but even if you're a small business and you have a schedule c you're going to have to do some accrual things because there's just such an extreme deviation between a cash based system recognition and accrual based recognition that it makes sense to use the accrual number one and number two if you do taxes in the united states the tax code is going to force you to do that and the fixed assets is one of those things let me kind of explain why if for example you were to purchase a building for a one hundred thousand dollars in january you just expensed it as building expense that would mean that the other side of the transaction would be on the income statement if you then ran the income statement comparing month to month january and february january would look like a very bad month because you would have a hundred thousand dollar building expense bringing net income into a big loss most likely but that's not really correct because when we're trying to measure performance we did not really have a huge loss because we're going to use that building for like 30 years into the future that's why the accrual method is important because it helps us with that comparative process for those large purchases so so it makes sense most times when people buy a building even if they pay cash for it they don't think i'm just going to expense that because that would be weird because it just intuitively know that that doesn't sound right it doesn't sound right because you're doing the accrual thing by putting it on the books as an asset so we put it on the books as an asset and then how do we expense it we expense it in the form of depreciation over time over the life of the building we talked a little bit last time about the fact that depreciation is not perfect because we're only allocating the cost and we notice we noticed that we could have a difference between the fair market value and the cost right it's just going to be an estimate so let's just think about how we can do that note that when you're when you're purchasing a building then you would want to have a sub ledger a sub ledger that's going to break out what you're actually purchasing in part because you might sell it in the future and you'd have to take it off the books as an asset and in part because you're going to have to calculate the accumulated depreciation now oftentimes small businesses in particular might not do that within the quick books system and one reason is because you have to do it for taxes anyways if you're in the united states which means the tax software is going to have to have each piece of equipment on line by line so that it can calculate depreciation not on a book basis but a tax basis but the fact that you've already given that information into an accounting system means that you could use that same accounting system that same software to also calculate the book basis if you want it to be different or simply use the tax basis as your depreciation method which might be appropriate for small businesses so if you give this information to your accountant then their tax software might look something like this right this would be supporting the information on our books in a similar way as the sub ledger of accounts receivable will break out the ar by who owes us the money by customer so for example here we could say okay the cost of the equipment i don't want to have it on my sub ledger as just one big lump sum of the equipment i'd read i need to break it out by what we purchased so these are the things we purchased as of the beginning balance so we had 15 plus 23 plus 12 plus 5 plus 2 plus 3 plus 7 plus 8 that gives us our 75 that is here so there's our 75000 right so that's going to be our our beginning balances we had up through up through the prior year now in the current year when we make purchases which we're imagining we're doing now we're going to we're going to purchase more equipment uh if we purchase multiple pieces of equipment we don't want to put it on our sub ledger schedule as just say furniture and equipment generic account and one lump sum we're going to put it on the books as what we actually purchase like an office desk and we're going to have furniture office table we just made up some stuff here uh but just note that when you work with your accountant in order to get the proper depreciation calculation you're not going to have to give them you can't just give them one lump sum you want to give them as much detail as you can so they can put the information on the books line by line now i also just want to point out that you might say well why does that matter because i could just put it on the books as one lump sum and the depreciation calculation will basically be the same because there's a mid-month convention so it doesn't really matter however it doesn't matter too much possibly in the year that you put the equipment on the books but if you put all this stuff in your sub ledger as one line item and then you sold one of those items that you've grouped together now in the sub ledger let's say you sold the office chairs then you're not going to be able to record the sale easily because you'll have to break out the information and so and into its components right so so it won't hit the stuff won't hit the fan it's kind of like payroll you want to get it right the first time uh things are going to hit the fan not when you put it on the books but when you start to sell and dispose of things because you'll find that you will not be able to locate the thing that you're disposing on the sub ledger or that thing will have been grouped together with other things so make sure you're working with some tax professional that knows what they're doing with regards to the sub ledger so you don't end up with a mess now the depreciation methods over here note that if you're on tax depreciation you're probably going to use the you know acres or whatever the tax basis uh will be and you might just use that as your book basis even though it's not exactly accurate you might have 179 deductions that allow you to deduct a lot upfront or special depreciation and you and so you might just say on the book side i'm just going to use that tax depreciation even though it's not really accurate for bookkeeping because the tax code has different objectives because it's easy otherwise i'll have two depreciation methods or you can tell your accountant hey look you're doing this schedule already on the tax return i would like you also to tell the software that on the book side of depreciation i want to do something different possibly like a straight line a normal straight line depreciation in which case they can give you a sub ledger for your books which will be different than the sub ledger for the taxes also this sub ledger usually for tax software will have specific sub categories like machinery like furniture and fixture and machinery and equipment in this case so when you're buying things on your side and grouping them into property planting equipment you want to have the same sub categories as the sub ledger which will often be in outside software in the tax software so ask your accountant what are the sub the sub ledger accounts because as we saw when we looked at the general ledger the things given from quickbooks are really expansive and kind of tedious looking and possibly are not the format that you might want to use if you're using tax thought software as your sub ledger you want to kind of tie into the sub ledger from the tax software then as we do that also just realize that you could have an accumulated depreciation account that represents total accumulated depreciation meaning all depreciation for all categories that would be kind of like the easiest thing to do but i think most likely most people would probably break out the accumulated depreciation by category okay so just a couple tips as we go through as we go through this so let's say we're we're purchasing equipment in practice we might actually just write a check right we might go in here and write a check for it or have an electronic transfer at which point we would record it at that time or we might use bank feeds meaning you might be purchasing something from an office supply store which you normally just expense as office supplies but you have a large purchase now we're going to say $18,000 which would look funny if you just expense it in office supplies so when you look at the bank rules which we'll talk about in future course or section when we look at the bank feeds you might want to set a boundary and say the rule is if you're under a certain dollar amount like just a random dollar amount like five thousand or something or you know even whatever it is i'm going to just expense it if it's over that dollar amount which is an arbitrary dollar amount right we're just trying to make it simple we have to draw a line somewhere if it's over that dollar amount i want you to not just expense it and possibly put it on the books as a fixed asset okay so but we're going to go to the first tab now and we could record it with an expense form but i i think it will be easier to go to the register so let's practice using the registers which are similar to the bank feeds which will still create an expense form let's go into the register here but it will do that that shortened data input which will hopefully help us to get the idea in the checking account chart of accounts checking account and we'll get the idea that that the register will will be still creating the actual full form of in this case we're going to use uh an expense form so i'm going to go expense and then we'll say this happened as of 010924 we're going to say and the payee we're going to say that we bought it from office depot i just bought some of furniture from office depot but someone stole it right off my porch i think pretty sure it's pretty crazy got some crazy kids around here i don't know furniture we're going to say payment it was a nice chair too i could sit indian style in it that's what i wanted so i can try to sit like indian style it could my legs get tired but whatever whatever it didn't have any arms on it so my knees don't hit any case furniture and equipment so we're going to say it's furniture and equipment point is it's going into a fixed asset type of account it's going into a fixed asset type of account and so there we have it what's this going to do decrease the checking account by 18 000 it's going into uh the fixed asset account no impact on the income statement so notice other purchases and often when we use the expense form it would go to the income statement account but it's not here we're going to save it and check it out let's go on to the balance sheet run it again to see what's happening with it and drill down on the check-in account and we can see the new activity new activity there it is the expense form name office depot we put purchase furniture and the other side went to furniture and equipment if i go into that expense form it doesn't take us to the register it takes us to the full expense form which looks like this so there's the category it's not an inventory item it's a category but it's not an expense even though we use an expense form because the expense form is basically just a check without the check number let's close this back out and go back the other side of course in our fixed assets now for the furniture and the equipment so if i go into that one we've got the 93 and there's the activity so just realize now the the thing we want to realize like with this sub schedule which you might feel overwhelmed about you're like well this is crazy sub ledger how how do we maintain this thing if it's not in quickbooks for example well on a periodic basis possibly at the end of the year or even monthly or even whenever you buy the equipment you can provide this information to your accountant so possibly at your end for small businesses you're going to give your accountant this information or possibly give them access to your quickbooks file where they can drill down and find this information so that they can put this new piece of equipment on their books but remember that 18 000 might be standing for not just my one chair it stands for all a bunch of office stuff right so we don't want them putting it on the books as just one lump sum purchase if it actually represents as we're imagining here separate purchases like there's the office desk table there's my chair right there we have to write it off as a as a shrinkage already but you know there's that's the idea and then we also have these two down here plus three plus two we're going to be putting 28 on there in a second so this doesn't tie out exactly but i think we're going to be adding 28 000 after we do the next one as well but the point is you don't want to put it on there as one lump sum even though we purchased multiple things at one time because like i say if i now now once my much my chair was stolen it's like well what am i going to do if i put it on there as one lump sum then how am i going to take the chair off the books because i have to find the related accumulated depreciation to properly remove it from the books so that means that on on quickbooks you might want to give as much description as you can in here possibly in the memo to describe what you purchased and this is also an area where it might be useful to actually take a screenshot or a pdf shot of the of what you purchased so that you can then provide that to the accountant so they have the details and if there's any kind of if any kind of number related to it like the product number or something like that they can put it here so that when you when you sell the chair or when there's shrinkage or something stolen you can identify the actual thing that was stolen it's got its own line item so that you can then take the chair off the books properly right so you want you want to be careful of that so so you might actually so all the accountant needs then is the added information the additional stuff because you don't buy new equipment all the time i was expecting that chair to last me like 10 years right i don't buy chairs that often so like you know you don't buy it all the time therefore there's not going to be as much activity in this count much different than the cash account which has a ton of activity and therefore the accountant or the tax preparer can see that limited activity and get the backup information and just add to the schedule that looks tedious but has been growing over a long period of time now you also have to make them aware of the shrinkage by the way the things that are stolen for example so if i saw that my office chair was stolen the accountant wouldn't know that right so i'd have to actually tell them that i no longer have the office chair you need to take it off the books you know you have to tell them the decreases as well so they can fix that one or or we can do the jewelry for that okay so that's that one let's do another one let's make another purchase we still got some cash in there so let's make another purchase i'm going to go back to the left hand side and we'll go in here again in our register and i'm going to make this one as of the 11th let's say notice i hit the plus button to go up a little bit and then this time i'm going to buy it from amazon we at our place we've got this new amazon this new lock box system so they're supposed to deliver it to the lock box but the people never do but then i put like a message in the amazon to use the lock box but it didn't work last time because then fedex delivered it instead of amazon and fedex delivered it wrong again so but whatever and then it got stolen but that's okay i'm just going to say this is going to be so you might want to put in the memo like this is my chair that this chair number two that i'm purchasing again and then we're going to say it's for seven thousand dollars and this is an expensive chair or multiple maybe we have multiple things here this my chair is just one of the things on there is chair number two plus other stuff which i don't really care about right now and then we're going to say that it's going to go to the furniture and fixture account obviously in practice this information is going to be it's going to be you want it as detailed as possible so that you can give it to your account so i'm going to say okay now if i go back into this by the way if i go into here and i edit this form then down below you could add attachments so if you're working with your tax preparer you're going to say hey look this is what i purchased here's the generic category that seven thousand actually represents multiple things take a look at the attachment so you can see the bill or invoice for it so that you can properly put it on the books breaking out the detail as you should so that if something gets stolen or something i can write it off properly without having a a mess going around here so so at least i can do that much at least i have control over that much making the accounting proper so let's go to the balance sheet and run it and check it out again back into the checking account and we're going to say that we now have the expense amazon boom let's go in here now notice how much activity is in the checking account because the checking account is something that we use all the time so if i go into that account that we go back to our our expense form with us which is the long format closing that back out and back notice that the checking account will have a lot of activity accounts receivable will not have as much activity typically but it will be used constantly if you invoice clients increasing with invoices decreasing with the received payments inventory also not nearly as much as activity as the checking account but it will start to accumulate a lot of activity over the year as you purchase and sell inventory investments probably won't have a lot of activity the furniture and equipment will not have a lot of activity because you're not going to be purchasing stuff all the time here and that's why again it's a it's not as difficult to manage as you might think because this might be all of all that we purchase in the entire in the entire year so there's our seven thousand that we can then provide to the accountant who at the end of the year can put it on the depreciation schedule and then they can properly calculate the depreciation either on a tax basis or they will do it on a tax basis to do the tax return which we can either use or we can also have them use a straight line method that we can then use to do adjusting entries on our side so so I think what did I say the total added up to again where's my calculator uh 28 28,000 so if I go over here we put what happened okay I'm actually going to make a correction I think we need to make a correction to this one this one right here and I'm going to I did this on purpose by the way in case you were wondering so that we can show you that we can drill back down to the source document and correct this one so this 18,000 I'm going to drill back down onto it and then say the dollar amount was wrong it should be 16,000 I couldn't read my worksheet because my eyes are going bad a little bit actually I'm trying to work out my bad eye that's right my good I would have caught it but I'm working out my bad eye so that's how that's why but let's go ahead and save it and then but I did it on purpose that's not why I did it on purpose but also I'm also working out my bad eye okay so there we have it so there it is so so then this should tie out then uh to to what we have on the purchasing side of things over here and we will uh and so so there there's that and then later we're going to also have to deal with the accumulated depreciation that's typically done with an adjusting entry so adjusting entries are typically done at the end of the month or year so we'll talk about how to do that but the general concept is you put it on the books as an asset and and therefore you're going to have to allocate the cost of it because machinery and equipment will actually still be consumed over time so you would think it would be kind of like supplies or inventory that you would decrease this account and record like equipment expense over here as you consume it but instead we don't do that we used accumulated depreciation and depreciation expense why well partly possibly because the it's just an estimate if I bought a forklift I still have the same forklift on the books but now I'm thinking it's worthless because we've used it and therefore the value of it is going down I don't know how much it's actually worth though therefore I'm not going to I'm not going to post to the actual account as though I had less forklifts because I have the same one but instead record another account which might give an indication to people that this is just an estimate so the difference between these two accounts therefore is the book value but the book value is just an estimate and and and and therefore that kind of gives an indication that it's an estimate so it's a little bit more complex than just writing down this account itself but that's kind of the justification that's why we end up with this contra asset account which is an asset account that basically brings assets down has it has an opposite balance okay so this is where we stand right now this is our balance sheet as of this point in time after the correction nothing yet on the profit and loss still because we're still purchasing stuff to really get in the swing of things for the first month of operations in our new accounting software here's our trial balance easiest form to use I believe to compare your books to our books if your numbers don't tie out to these numbers try changing the date range possibly increasing it because it's often a date issue if you see the numbers change drill down on the number find the transaction go to the source of it such as the expense form change the date and then run it back again so we have up top we've got the assets checking account accounts receivable inventory investments and then the accumulated depreciation there's the contra asset that's why it's a credit like where all the other assets are debits there's the furniture and equipment that we changed this time here's the liability starting with the accounts payable then the credit card balance due then the loan and then the equity section which includes our investment as well as the owner's equity representing income that has accumulated over the life of the company before we started it in this books in the prior accounting system which has not yet been distributed in our case in the form of draws if it were a corporation that would be in the form of dividends