Hi,
Please can someone sanity check this. I have sold a computer and want to account for book value and invoicing\VAT. My company is VAT registered, so needs to invoice. When I originally bought it, I used a reoccurring journal to log 100% depreciation over three years. At the end of each month since I bought it, the following transactions were created automatically:
(0031) Office Equipment Depreciation: <1/36th of purchase price> (Credit)
(8004) Office Equipment Depreciation: <1/36th of purchase price> (Debit)
The sale occurred after three years, by when it’d been completely depreciated (written-off). I expect I need to enter the following journals on the date the sale occurred:
(0030) Office Equipment: < original cost> (Credit)
(4200) Sales of Assets: < original cost minus depreciation (zero in this case)>
Note there is no debit journal on the sales date for (0031) Office Equipment Depreciation since this has already been journaled monthly. However, if I try to enter these, it errors: “The credit and debit totals do not balance!”
Then I expect I need to create an invoice for the sale price, and in current account, tag the transaction against it (choose “Payment from a customer” and let it find the invoice).
The only difference if I’d sold when it had only partly depreciated, is I’d have to calculate the number of complete elapsed months since purchase, go into the reoccurring journal and change the number of Occurrences. Otherwise, it would continue to depreciate after I’ve sold.
Is this correct? How do I solve the journal error? Many thanks.
When you sell the asset you have to reverse the accumulated depreciation on the balance sheet as well as the purchase cost. You would credit 0030 for the original cost and debit 0031 for the accumulated depreciation, and put the difference (the net book value of the asset) as a debit against 4200 to balance the journal - in this case that’s zero.
Now the invoice you issued to sell the asset also goes to 4200 as a credit, and the net result is that if you sell it for more than its net book value then 4200 shows an overall profit (credit), if you sell for less than the NBV then 4200 shows a loss (debit).
How can I do that? The choice when you tag a bank transaction is either "Payment from a customer" and select the invoice (but no journal options), or “Something else not on this list” and enter the journals, but note the warning on this page:
“This method of tagging will bypass any invoice and should only be used when aninvoice is not required. If you are VAT registered you should always post your sales and purchases to an invoice to ensure any VAT is accounted for”
I need invoicing so the VAT works out. Perhaps the solution is:
(0030) Office Equipment: < original cost> (Credit)
(0031) Office Equipment Depreciation: < accumulated depreciation> (Debit)
Then create an invoice for the sale price, and in current account, tag the transaction against it (choose “Payment from a customer” and let it find the invoice).
Yes, that’s what I meant - when you create the sales invoice click the little cog wheel icon in the line description box and change it from “general sales” to “sale of assets”. Then when you tag the payment in to your current account you can assign it to the invoice in the normal way and the VAT will Just Work.
In your specific case there shouldn’t be any journal lines against 4200 as the NBV is zero.
So you’re saying each month when the automatic journals are logged I am building up depreciation on the balance sheet (0031 credits). And on sale I need to reverse this depreciation (0031 debit)? If I hadn’t built up the depreciation, would I have had to put both a 0031 credit and debit 0031 upon sale?
Yes. When you purchased the asset it became a debit on your balance sheet (under 0030). Each depreciation journal effectively moves a small chunk of the asset’s value from your balance sheet (by credit to 0031) over to your profit and loss account (debit 8004). When you sell the asset you remove all trace of it from your balance sheet (so credit 0030 and debit 0031 to cancel out the original purchase and the depreciation that has accumulated) and transfer the remaining net value, if any, to P&L.
I’m not sure what you mean by this - if you’re buying something and then selling it again immediately before it has had time to depreciate, then arguably the original purchase should have been a P&L item (such as “general purchases”) rather than an asset anyway.