Purchase of Capital Asset between start dates

You may have bought a capital asset for your business in between your company start date and your FreeAgent start date, if your business has been trading for a while.

Here's how to deal with that asset in FreeAgent.

Initial entry

The asset would form part of your opening balances.

It's also likely to have some depreciation brought forward.

You need to put the original cost of all the assets your business bought between these two dates as a debit balance into code 602 Capital Assets, and the depreciation that's built up so far on all those assets into code 605 Accumulated Depreciation as a credit balance.

On-going depreciation

Each year you'd need to work out the depreciation on this asset, because FreeAgent can't do this for you automatically for assets that you bought before your FreeAgent start date.  Your accountant, if you have one, should be able to help you with this.

You'd then post the depreciation as journal entries, debit code 460 Depreciation Charge, credit code 605 Accumulated Depreciation.

I'd suggest you post these entries on the anniversary of the day you bought the asset.

Do this each year until the asset is fully depreciated, that is, until you've posted as much in depreciation for that asset as the asset originally cost.

Example

Let's make it easier by crunching some numbers.

Mary is a self-employed web designer.  Her company start date is 1st January 2009 and her FreeAgent start date is 5th April 2010.

She bought a new Mac for her business on 1st May 2009.  It cost her £1,500 + VAT.

Mary's accountant tells her to depreciate this computer at £500 a year, to spread its value to the business over 3 years.   So on 1st May 2009 Mary will enter depreciation of £500 into her old accounts system.

As part of the opening balances Mary puts into FreeAgent as at 5th April 2010, she will have:

602 Capital Assets: Debit £1,500

605 Accumulated Depreciation: Credit £500

Mary will post journal entries dated 1st May 2010 to enter the next year's depreciation of £500, debit 460, credit 605.  This takes the total depreciation posted for that asset to £1,000 (£500 in the opening balances, £500 by journal entry).

She will then post an identical set of journal entries dated 1st May 2011.

Once she's posted that set, she has posted £1,500 worth of depreciation, which was as much as the asset cost.

So she won't post any more journal entries to depreciate that asset.