This post follows from Part 2 - Managing Inventory and this post will go through:

• What are fixed assets
• Creating fixed assets
• Depreciating a Fixed Asset
• Disposing/Getting rid of fixed assets

What are fixed assets? A fixed assets is something the business owns or keeps with is expected to last more than 12 months. E.g. It could be the fit out for a kitchen, a car/truck/van, computers, desks and chairs and more. When you buy something like this, this is what happens in accounting:

Example if you’re buying a standing desk (I love them!):

1. You receive a bill for $600 and make payment at the same time on their website (so bill of $600 in your accounting system and $600 cash going out of your bank account)
2. In Xero, you’d put that $600 bill not to an expense, but rather a fixed asset account. What this means is that the $600 bill doesn’t reduce your profit straight out but rather is an asset to your business and helps you to produce money.
3. When do you expense? Have you heard of depreciation? If not… here’s an explanation of what depreciation is and why we need depreciation. Depreciation is what you’ll record instead of expensing the $600 outright - although the 2015 Australia Federal Budget has allowed a $20,000 depreciating asset immediate write off which is kinda cool.

So that’s an explanation of what fixed assets are. Let’s move on…

Creating fixed assets

1. You’ll need to first create a fixed account account. Follow the details to create an account in Xero and remember to choose the type as “Fixed Asset” and the tax rate would be “Consumer Tax on Capital” whatever your consumer tax is, for nearly all Australian businesses this is usually GST, but you should also check with your tax accountant.
2. Create a contra fixed asset depreciation account. Follow step 1 to create an account and called this account “Less Accumulated Depreciation on —- (whatever your asset name is)”. The account type is “Fixed Asset” and the tax rate as “Exclusive of Consumer Tax”.
3. Make a depreciation expense account. Follow step 1 to create an account, with the account type being “Expense” and the tax rate as “Excluded Consumer”.
4. Once you’ve created your series of fixed asset accounts (Step 1 - 3 above), you need to record your purchase. That’s just creating a bill in Xero and here’s a guide on how to do that. Just remember to:
   • Allocate the bill to the fixed asset account that you created in Step 1.
5. You can reconcile the bill later (and that won’t affect it being a fixed asset). Move to Step 6.
6. You need to process the fixed asset into the “Fixed Asset Register”. Go to Accounts > Fixed Assets and in the pending items area, you should see your fixed asset.
7. Locate the asset and double click it and a new window will open. Fill in the details:
   • An automatic asset number will be created for you. Leave it as it is.
   • Fill in detailed description of your asset in the description area. E.g. insurance policy number, make, model, color and anything else that would be useful.
   • You can even upload an image of it by clicking the document upload button (it’s the button that looks like a sheet of paper with the top left hand corner folded).
   • Enter your asset type in the Asset Type field e.g. “Motor Vehicle”.
   • Then click save.

Depreciating a Fixed Asset

1. There are two types of depreciation. Straight line and diminishing value and Xero only allows those with Adviser status in Xero to allocate and process depreciation (there’s a reason why! It just gets messy to clean up if done incorrectly). But… here’s the process anyway:
2. First allocate depreciation.
   1. Enter depreciation rate in the Depreciation Rate field of the fixed asset.
   2. Choose a depreciation method.
   3. Select depreciation expense account and the accumulated depreciation account (remember you created these in Step 2 & 3 of “Creating fixed assets”.
   4. Then register the asset by clicking “Register”.
3. Process your depreciation
   1. Go to Accounts > Fixed Assets .
   2. Click the depreciation button.
   3. Check that the fixed asset start date is correct. If not, click “Start Date” button and enter in the correct start date and click “OK”.
   4. Enter the end of the financial year in the “Depreciate To” area and click “Update”. This will run depreciation.
   5. In “Accumulated Depreciation Account” select your account from the drop down list (this is the contra account that you set up earlier).
   6. Click “Approve”.
   7. If you’ve made a mistake with depreciation processing, you can always roll it back. Go back into the depreciation window by clicking “Depreciation” and click “Rollback Depreciation”, fill in the details requested and click “OK”.

Disposing/Getting rid of fixed assets

1. To get rid of fixed assets from the fixed assets register, you’ll need Xero adviser status. If not, you won’t be able to do this. If you do have Adviser status, here’s how to record sale of fixed asset and the disposal of a fixed asset.
2. Sale of a Fixed Asset
   1. Go to Accounts > Fixed Assets and select “Registered Items” tab and click on the item that was sold.
   2. Click on the “Asset Options” button in the top right corner and select “Sell”
   3. Enter in the details of the sale and when ready click “Review Journal”
   4. Allocate Total Capital Gain to a suitable account
   5. Put the Loss/Gain on Disposal to a suitable account - you might need to create a new one.
   6. Post the journal click clicking “Post”.
3. Disposing of a Fixed Asset
   1. Go to Accounts > Fixed Assets and select “Registered Items” tab and click on the item that was disposed.
   2. Click on the “Asset Options” button in the top right corner and select “Dispose”
   3. Enter in the details of the disposal and when ready click “Review Journal”
   4. Put the Loss/Gain on Disposal to a suitable account - you might need to create a new one.
   5. Post the journal click clicking “Post”.

You’re ace! You’ve completed Part 3 of this Intermediate Guide. Move on now to Part 4 - Accounting for Multiple Currencies.