MANAGING AND MAINTAINING YOUR FIXED ASSETS

Let’s first take a look at an asset that is purchased with funding source money that is a line item in your grant or contract with that funding source. The example we’ll use is a van with a purchase price of $30,000. Since it is an expenditure line item in your grant or contract, when you purchase the van you will be debiting an equipment purchased line item on the P & L side of your financial statement. This is the first area that presents a question about how you want/need to record the transaction.

As it is a part of the funding source expenditure budget you have no choice but to code this transaction to the expenditure code if you want to show that you have met that line item obligation. That finishes the transaction on the P & L side of the system, but now you need to decide on whether or not you want it listed on your Balance Sheet as a Fixed Asset.

Since the above transaction recorded the purchase you will need to record another entry should you want to get the item on your Balance Sheet. If you are tracking assets purchased with funding source money separately from assets purchased with agency discretionary funds you will have two asset accounts set up: Funding Source Vehicles and Agency Vehicles. If this is the case you would code the debit to Funding Source Vehicles and the corresponding credit to Invested in Fixed Assets.

As I stated in the beginning, this is only one example of how the transaction may be recorded. Although it places the information everywhere you need it, there is an argument that this may be overstating your Financial Statements because you now have the purchase of the bus listed twice in your books.

If your take on this is that it indeed does overstate your Financial Statements you may want to consider recording the transaction as the expense at time of purchase and simply entering the second entry to the Balance Sheet in a special set of Year End entries in preparation for the YE Financial Statements to provide for the auditor.

Another option would be to only record the expenditure at time of purchase and have the auditor include the capitalization entry as part of their financial statements only for presentation purposes.

Once the initial recording of the fixed asset is complete, how that is accomplished will determine whether or not subsequent depreciation entries will be done. Typically, if the purchase is recorded as an expense as we did in this example to meet the 30,000 budget obligation, there would be no depreciation entries done. Since the debit side of a depreciation entry typically goes to a depreciation expense code, that entry, combined with the initial expense when the asset was purchased, would result in recording the expense twice.

The only time you would do depreciation entries would be for asset purchases that were initially coded directly to the Balance Sheet. And even then, whose money was used for the purchase may have an effect as well on how the asset is coded.

As you can see, there are many options on managing/reporting your fixed assets. As I stated in the beginning, if you do not have a well-defined procedure in place for all of these scenarios, it is strongly recommended that you contact your auditor or funding source(s) for assistance.