Accounting - Fix Assets

[Pam]

We have just purchased a new computer for Worship. I know I need to add it to our Fixed Assets for Equipment, but I am at a loss as to how to make the offsetting entry.

I will be posting the purchase payment with a credit to the checking account and a debit to Media Equipment. But how do I make the entry to show it as an asset?

Thanks!

[Jeff]

Is media equipment an asset or expense account? Normally when you buy something that you want to show as an asset you would credit the bank account and debit an asset account.

[Pam]

I guess that's what I am not sure about, as I tend to think it's both, and that I should be making entries to show it as both. Am I making this harder than it is?

[Pam]

Now that I think about it, though, a computer, or anything than can be removed, would not be considered a fixed asset. We do, however, have line items set up under Fixed Assets for Buildings, Vehicles and Equipment, which has under that category(Equipment), Musical Instruments, Sound Equipment, Computer Equipment, Office Furniture. Which is where I thought this would belong.

Perhaps this is not correct, and that's why I'm confused? I was thinking a fixed asset would be something of monetary value to the church, that would contribute to the overall equity value.

[Jeff]

I was thinking a fixed asset would be something of monetary value to the church, that would contribute to the overall equity value.

This is correct. The church board would normally set an amount that things purchased above this amount are capitalized and their costs recognized over their useful life. This is known as depreciation. For profit businesses do this all the time, but many churches don't. Doing this makes the accounting more complex, but gives a more accurate picture of the churches financial condition.

[Matt]

Pam,

If I understand your situation correctly you want to debit the Media Equipment account so that the purchase will show up on the Income and Expense statement. But you also want to record the purchase in the asset account for Equipment so that it appears on your balance sheet. In order to do this you will need to input a second entry to "capitalize" the computer in the asset account. The credit will go to the same fund balance account as the Media Equipment expense account is set up to close into. The net effect will be an increase to the overall equity value.

Matt

[Pam]

Thank you, Matt! That's exactly what I was looking for, but I wasn't sure where to post the offsetting entry to the Asset account . Actually, I had never considered that I could make entries directly to the closing account itself. Can you tell me if there are "rules" for posting to this account and where I would find them, for future reference? Thanks, again!

[Matt]

Pam,

The "rules" regarding posting directly to the equity accounts are Generally Accepted Accounting Principles (GAAP). Under GAAP you normally don't make direct postings to the equity accounts. However, I run across many situations like this, particularly with mortgage payments, where the church wants to see the full cash outlay amount as an expense on the Income and Expense statement, even though according to GAAP part or all of the payment should be debited to either an asset or liability account. Many church boards equate a cash outlay to an expense. The only way for the payment to show up as a cash outlay on the Income and Expense Statement and as an increase or decrease to an account on the Balance Sheet is to do the second entry and post directly to equity for the balance sheet part of the payment.

Matt