Add & Sell Assets to the Business
hdmalith
Member Posts: 2
Recently I purchased a laptop for my business work & sold the one I had to a nother person.
I wanted my accounts to reflect that (and any asset purchasing & selling)
Im confused on how to add these transaction details to Wave.
1
Comments
Hi @hdmalith.
Acquiring an asset in Wave is just a simple transaction. You just have to create an expense to your payment account with the right category. So in this case, tat category would be "Hardware - Computer" or something along those lines. You could also record it as a bill or a receipt, if you want to keep more information on your account.
As for selling a laptop, you would be creating an income with the same category, but you'd have to record that laptop as having been bought as an asset first. Assuming this transaction isn't already in your books somewhere, you would have to follow the instructions here.
You would then have to make an income transaction for the amount you've gotten from the sale, using the "Hardware - Computer" category.
Finally you'll have to account for the loss of value of that old computer, to make sure that the numbers in your Asset account reflects only the assets you have. To do this, follow the instructions here, starting at point 3.
Let me know if you have any questions!
Hi Alexia, can I ask some clarifying questions on top of that? Wave support has been slow at helping me out on this one so I figure I'll try it here.
So first, something that might be confusing here is that Hardware-Computer is an account that exists already in the expense category but isn't an asset one. I created a separate account for my asset hardware.
I haven't found a way to use the receipts to link to assets, so I default to bills every time.
This is the way Wave support has guided me towards to account for this, on an example of a camera purchased for 1500 and sold at 1200.
Gain on sale of asset:
Cash/bank: Debit - 1200
Accumulated depreciation: Debit - 500
Fixed asset (camera): Credit - 1500
Gain on disposal 200: Credit -200”
A few things weren't clear to me with this. Maybe help me see if I understood things?
I'm sorry if my questions are a bit confusing too. I feel I'm SUPER close to understanding it, but just missing a little something.
Hi @Kendricks866, you're on the right path! Let's see if I can make this a bit more clear.
1- Not exactly. The assumption here is that the camera has lost $500 of value. A depreciation of $500 for our camera would've been recorded ahead of time, following the steps outlined here. So you would have a $1500 debit for your camera, and a $500 credit for depreciation before the sale happened.
2- That's really up to you. You could make an account and call it "Gains/Losses on disposal" for clarity's sake. Ultimately, your numbers will balance out in the end, it just might make easier to organize your reports with separate accounts.
3- Yes, that's right. When you buy an asset, you don't lose money, you just store it in another format. Your camera is still worth $1500, so even if money has moved from your bank account, but you still own that money in the form of your camera. If you sell it for $1200, you'll have lost $300 of the total liquidity of your business. That's why only this $300 expense will show up.
Does this all make sense?
It does! Thanks so much. I'm almost there!
I do have some follow up questions.
If the asset I'm selling is one I brought with me into the business, does the process change at all? I.E. should I create bills to myself dated to the start of my business to 'list' my assets and build the assets account that way, so that when I sell, it balances? Or is there another way to 'bring assets at startup'?
What if I want to add sales taxes to the mix (to make it harder, obviously), how do I record sales taxes when I sell my assets? In the above example, I've sold at 1200, but that really means I need to subtract sales taxes, so the actual sale price is 1061.95. I can easily do the calculation based on that number instead, and balance it out, but then how do I record that 138.05 sales taxes?
Hi @Kendricks866! You got this!
You would basically go through the same process if you were using something you bought with your personal money, but pay it through a journal entry that debits your asset account and credits "Owner's Investments/Drawings". That account represents money and resources that you, as owner, are putting into your business, or taking from your business.
You can put in a tax on the income transaction from the sale. Just select that transaction and add a tax. It'll calculate the amount of the tax backwards from the total.
Oooh ok thanks!
So follow-follow-up:
1. So no need to create a bill for this, just an extra journal transaction? Or I do the bill thing, THEN a journal transaction?
2. Will putting the tax on the transaction also modify the journal transaction? For example, what I sold for 1200, I really sold for 1061.95 plus taxes. Shouldn't the journal transaction use that number as a sales price for the proper gain or loss?
Back to 1.
I think I understand, and only need the journal transaction for it.
That being said, if I ever sell said item, I'm assuming I must then debit Owner's Investments/Drawings account to balance it back in another journal transaction? Or part of the sale's journal transaction?
Ok more updates as I'm thinking about it more.
Someone suggested starting the whole assets sale process with an invoice. So I thought about that process a bit.
Normally when I sell something (my photo services), the invoicing process takes care of sales taxes. It would make sense then to start this way. I think what I then need to figure out is how to adjust our journal transaction afterwards, since my ‘cash’ account will already have been debited from the invoicing payment.
So if we go this invoice route as a starting point for the assets sale, let’s walk through it. Still using the assets sale (a camera) of 1200$, which means 1061.95 of actual sale and 138.05 of sales taxes:
Create invoice for said item: this creates the price and taxes separation.
It does, however, puts this transaction in my sales account, flagging it for a full income amount (instead of the ‘gains on assets’ only as income).
Record Payment into my ‘cash’ account.
Create Journal Transaction for assets balance: Now assuming that the invoice transaction automatically removed the tax already, I need to remove only 1061.95 from my sales account. Do I basically just replace the ‘cash’ account in the assets sale journal transaction (discussed previously) with the sales account?
In this process, how do I adjust the journal transaction to the invoicing process?
Is it even the proper way to go?
Alright, let's break this down, @Kendricks866!
Do you need to create a bill?
I wouldn't bother since you aren't selling it to the business but just bringing it in as an asset. If you were actually buying it (as a business) off of yourself (as a person) then that's how I would handle it. You could set up a bill and then a journal entry if you wanted to keep track of it that way, but it's really up to you, in the end.
What about that journal entry
If it's your own camera that you are giving to your business, you don't need to account for taxes (you've already paid for those when you bought it).
Do I need to balance back Owner's Investments after a sale?
No, you don't. This is the whole timeline:
You would only need to bring Owner's Investment's back in the mix if you decided to take that money for yourself, instead of keeping it in the business.
Can I do this through an invoice?
Yeah, actually, that would work. Almost exactly as you said. You would not be using the amount after tax, however. You would be using the remaining value of the asset (to clear off that account), and just leave the rest as a sale. So in our example, if the camera was worth $1000 after depreciation, you would make a journal transaction that debits Sales and credits your Asset for that amount (putting the Asset account at $0). The rest, your profit, would just stay in Sales.
Woah I think this is it!
Last checks:
Sales taxes. From what I'm reading here, I should only charge sales taxes when I sell an asset that I've purchased new and had its taxes deducted against mine. If I'm selling an asset I've brought in, or bought used, I don't need to charge taxes on selling that asset since they've already been charged whenever the item was bought new. I was working under the assumption that ALL assets sales needed to be taxed. I'll double check with my accountant on this one, but that would make things a whole lot easier.
Well, if I don't need to account for taxes on assets brought in or purchased used, that kindof takes care of the invoice issue as well. But if I use the invoice method, what I'm understanding is that I don't need to go through the 'gains of asset disposal' account, in a way simplifying that journal transaction. It's just about balancing the assets account. Typing this and thinking it through, even if the accountant says 'no, tax everything', I can just use that invoice method and it seems like it would work.
P.S. just for the sake of tying loose ends, if I was to just use the original journal transaction we had discussed and account for sales taxes on the transaction page after like you had initially suggested, would that also retroactively adjust the journal transaction numbers? i.e. if I sell an asset I purchased new, and need to tax, is it possible using only the transaction method?
Also I feel I need to send you a beer somehow after all this. Thanks so much for keeping up with me.
Well more updates: Accountant, and accountants of other photographers I know, say that we have to charges sale taxes on all assets sales, whether it was brought into the business at startup or purchased used. So that means the invoice option is currently the only one I have that I understand that would work and include taxes.
Hi, @Kendricks866!
No, my understanding is that you have to account for the tax in all cases, except for the specific transaction where you(the person) are giving the camera to your business (since there's no cash transaction, it's just an investment of the camera's value). I'm very happy to hear you've reached out to an accountant, because my next reply was going to be "but we're not authorities on tax-related advice, so you're always better talking to an accountant when it comes to taxes".
In your P.S. case, your journal entry would end up looking like this:
Cash/bank: Debit - 1200
Accumulated depreciation: Debit - 500
Fixed asset (camera): Credit - 1500
Gain on disposal 200: Credit - 61.95
Sales Tax - 138.05
Although I'm fond a good IPA, I'm just happy to help! The best thing you can do to thank me is to be active on here and help other community members when you can!
I'll definitely try to be active as much as I can.
I do believe assets management in Wave should be a bit more documented, like the depreciation post that exists and is referenced early in this thread is the best available resource, but it's too limited.
Feels like what we've covered here, and I think this is where it's key, is the mechanics at the core of Wave, and it should be available in a series of posts and how-tos.
Like I was saying, I've had an accountant for over a year too, and they generally can't, or won't, help with Wave mechanics. They'll tell me 'yes, depreciate this amount', they'll tell me what the laws are, what I need to do, etc etc, but they won't tell me how that gets done within Wave. I feel it's a key element missing with the software at the moment, and I'm convinced many more are in my shoes.
Photographers might be a special kind of people with special needs, especially with assets, but I'm sure there are thousands of us out there trying to do exactly that.
Also I believe that last journal transaction described in your last comment is that last piece that was missing in my puzzle!
Thank you so much!
So just to confirm. Does this make sense? I feel the 1480$ total transfer is indicative of something that's been twisted around....
The reports seem to be checking out though, so it might really be our winner.
First of all, @Kendricks866, thanks for the feedback!
It looks good to me at first glance. Let's see...
So it tells me that you paid $1000 for your camera, it depreciated for $280, so it's worth $720 now.
You've sold it for $1200, $138.05 of which is going to taxes, and you're making a profit, after taxes of $341.95.
If all of that is right, you are in the clear.
Yep that's pretty much it! FINALLY!
Now to serialize that process for all my assets, and boom!
I'll see if I have time at some point to draft up a bit of a how-to about all of this.
As an added suggestion, and it might be technically complicated, but an assets management tab where all this can get somewhat automated and managed(with options) could be a super solid addition to the software.
Would you like to start a discussion on that under Wave Features, @Kendricks866? You could elaborate a bit more on what you would want out of that and see if it can gain a bit of traction with other users.
Our product teams drop by that category fairly often, and it's absolutely the best way for your feature suggestions to get visibility!
Good idea. I'll see if I can flesh it out a bit more a bit later today.