There are usually two cases in which you would write-off an asset from your accounting books. As I’m sure we have all experienced, hard drives crash and laptops and desktop computers become more useful as paperweights than office equipment. In this instance, the asset is donated or placed in the “circular file” for disposal with no resale market value. This is probably the most common scenario. To remove the asset from your accounting records, you would normally have to create an adjusting journal entry that removes the accumulated depreciation and the original acquisition cost. If the asset is fully depreciated, then the entry is fairly straightforward.
On occasion, the asset will not be fully depreciated then the entry becomes a little more complicated. Under this scenario there will be a residual amount that will create an additional line as part of the journal entry that will debit or credit an additional account, usually named Gain/(Loss) Sale/Disposal of an Asset, or something similar.
There could also be another occurrence where an asset is sold. Depending on the amount of the sale and the remaining amount of depreciation that has not been taken to expense, this can also result in either a gain or loss. Under this scenario, you would also have an additional line in the journal entry for the amount of cash received as a result of the sale.
Properly recording the disposal of fixed assets is very important. A Balance Sheet is a key indicator in the financial health of a company. Accurate reporting is necessary and required for those reviewing the balance sheet as company-wide decisions are usually based on the key information contained in the Balance Sheet and Profit and Loss Statement.
In Acumatica Cloud ERP, this process is made easier using the Dispose Asset function in the Fixed Assets module. By using this function, there is no need to create and release a manual journal entry to remove the asset from your accounting records. You also don’t need to know how much accumulated depreciation has been taken or how much may be left to depreciate. The function makes all of the necessary calculations and creates the journal entry that removes the asset from the books.
Prior to running the Dispose Assets function, you must create a Disposal Method. The Disposal Method allows you predetermine the reason and the Proceeds Account for the disposal of an asset or group of assets. Possible Disposal Methods could be sold, damaged or lost. For the purposes of this example, we will use a Disposal Method called Default. To create the Disposal Method, from the Fixed Assets menu, select Configuration>Disposal Methods.
From the main screen, select the + sign to add a new record. Enter a Disposal Method ID, and a Description for the Disposal Method. As an option, you can add a G/L account for the Proceeds Account. The Proceeds Account is used for instances where the accumulated depreciation and original acquisition cost are different and a gain or loss needs to be booked. Press the Save button to save the Disposal Method to the system.
To dispose of an asset, from the Finance tab, click Fixed Assets, select the Work Area tab and then navigate to Manage>Fixed Assets. Use the selector in the Asset ID field to select the fixed asset that you want to dispose. From the form toolbar, select Actions, and then click Dispose.
The Disposal Parameters box appears. The system date appears in the Disposal Date field, if this is not correct, enter the disposal date for this asset. Use the selector to select the disposal period for this asset. Select the Disposal Method. By default, the system uses the Proceeds Account from the Disposal Method if it was entered during creation of the Disposal Method. If not, a Proceeds Account must be entered into the field. If you want to depreciate the item prior to disposal, select the Depreciate before Disposal checkbox. Optionally, you can enter a reason for the disposal in the Reason field.
Press OK to dispose of the asset. All necessary journal entries are created and released once the OK button is pressed. To view the transactions created by the disposal, navigate to the Work Area of the Fixed Assets module and select Enter>Fixed Asset Transactions. In the Reference Number field, use the selector to navigate to the last Fixed Asset entry and select the entry. You will see the entries reflected in the grid below. The entry below represents an asset that had only month of depreciation expense.
BRETT MARTIN | Business Software Consultant
Brett has over 15 years of experience in accounting holding positions of Controller, Assistant Controller, and Accounting Manager in various industries including federal government contracting, not for profit bio-tech, real estate, motion picture distribution, and motion picture production. In addition, Brett has 10 years of experience implementing accounting systems such as Acumatica, Microsoft Dynamics NAV, JAMIS Prime ERP, JAMIS Financials, Deltek Costpoint, and Deltek GCS Premier. Prior to KTL, he worked as a Senior Business Consultant for JAMIS Software Corporation implementing JAMIS Prime ERP and JAMIS Financials. Brett has studied accounting and computer information systems at Morehouse and Montgomery Colleges.