Entering assets

Updated on Jul 29, 2016

Customarily, long-lasting purchases (called “assets”) are treated differently than regular expenses. Consider two purchases as an example: a company work van and a tank of fuel to power it. The fuel is a short-lived purchase. Buy it in January, use it in January. It won’t continue powering your van later in the year. That’s how regular expenses work.

The van is different, though. It’s an expensive purchase, and if treated as a one-time expense, it might be a big hit on the company’s profitability. And, it won’t be gone at the end of the period. A good van will deliver value for years to come, so it makes sense to spread out its cost over time. That’s the idea behind asset purchases.

The way that the LivePlan financial statements handle an asset is by recording its full value on the balance sheet, then calculating the amount of value it will lose each month over its useful life (that’s the idea of “depreciation”), and then expensing only that amount each month until the full value of the asset has been depleted.

If you plan to get a loan to pay for an asset (as in the company van example), be sure to add the loan separately in the financing step. All we’re doing here is adding the asset itself.

Note that not all assets are covered here. Cash, accounts receivable, and inventory are assets too, but we address those separately in our forecast. Just focus here on long-lasting purchases like equipment, vehicles, or furniture. You can also use this feature to spread out the expense of annual contracts or other short-term assets.

Adding a long-term asset #

Remember, a long-term asset is one that continues to provide value for several years (like a company van).

  1. Click on the Forecast tab, and then Assets:assetnav.png#asset:1758
  2. Click Add Asset:
    add asset.png#asset:983
  3. Enter a name for the asset (or a short description):
    asset name.png#asset:1000

  4. Choose how you want to enter the asset. Will you pay a one-time amount for it, pay the same amount per month/year for it, or pay varying amounts per month/year for it? 
    asset price.png#asset:1005

    • If you choose One-time amount, enter the expected purchase price and purchase date:
      one-time-amount-asset.png#asset:1759
    • If you choose Constant amount, enter how much you will pay for it (per month or year), and when that payment will begin:
      asset-cost-period.png#asset:1760
    • If you choose Varying amounts over time enter how much you will pay for it each month, as well as the next two fiscal years:
      varying-asset.png#asset:1761
  5. Click Next.
  6. Choose long term for the asset type:
    longterm asset.png#asset:1111
  7. Indicate the useful life of the asset. If this asset won't depreciate, choose Forever (do not depreciate) at the bottom of the list: 
    useful life.png#asset:1183
  8. Finally, if you chose "One-time amount" on the previous step of the overlay, you'll see an option that asks you to indicate whether you plan to sell this asset, and if so, when:
    resell-asset.png#asset:1762
    Note: If you don't see this option in your overlay, it means that you chose a constant or varying payment for the asset in the previous step of the overlay.
  9. Click Save & Close. Your long-term asset will appear in the assets table.

Determining the useful life of a long-term asset #

In business, there are two types of assets: short-term (or current) assets and long-term (or fixed) assets. Short-term assets will be sold, converted to cash, or liquidated within one year. For example, Accounts Receivable (AR) and inventory are short-term assets. In contrast, long-term assets are not intended to be turned into cash or be consumed within one year. Long-term assets could be computers, office furniture, building improvements, vehicles, etc..

Most long-term assets lose value, or depreciate, over time. A security deposit or a piece of land are examples of assets that won’t depreciate in value over time. When you are creating a forecast for your business, you need to account for the depreciation of any long-term assets your business owns. To do this, you need to decide the useful life of each asset, which is the length of time you think the asset will provide value to your business

Note that useful life is not the same thing as an asset's actual life. For example, your new delivery van may only provide value to your business for 10 years, but the van itself could last quite a bit longer than that. A variety of things can affect the useful life of an asset, including how old the asset was when you purchased it, how often you use it, and even the conditions under which the asset is used. New technology, changes in the economy, and new laws can even shorten the useful life of an asset.

Useful life periods are determined by tax authorities (for example, the IRS).  If you don't know the useful life period for a particular asset, you'll need to look it up. Here are some example useful life values for common long-term business assets (in the US):

  • Vehicles, computers, office machines, research equipment: 5 years
  • Office furniture and fixtures: 7 years
  • Agricultural or horticultural structures: 10 years
  • Land improvements:  15 years
  • Farm buildings (not agricultural or horticultural):  20 years
  • Residential rental property:  27.5 years
  • Non-residential real estate (not including the value of the land): 39 years

For more detailed information about how to calculate useful life and depreciation in the United States, see this article from the Internal Revenue Service: A Brief Overview of Depreciation. If you are not located in the US, or you need additional detail about how to depreciate your long-term assets, we recommend contacting an accounting or tax expert in your area.

Adding a current asset #

Remember, a current asset is one that is used up within 12 months (for example, an annual service contract). If the asset will continue to provide value for several years (like a company van), be sure to add it as a long-term asset instead.

  1. Click on the Forecast tab, and then Assets:
    assetnav.png#asset:1758
  2. Click Add Asset:
    add asset.png#asset:983
  3. Enter a name for the asset (or a short description):
    asset name.png#asset:1000

    • If you choose One-time amount, enter the expected purchase price and purchase date:
      asset price 2.png#asset:1001
    • If you choose Constant amount, enter how much you will pay for it (per month or year), and when that payment will begin:
      asset constant amount.png#asset:998
    • If you choose Varying amounts over time, enter how much you will pay for it each month, as well as in the next two fiscal years:
      asset varying.png#asset:1009
  4. Click Next.
  5. On this step, indicate that this is a current asset:
    current asset.png#asset:1033
  6. Select the length of time that this current asset will provide value, so LivePlan can expense a suitable portion each month. If you don't want to expense it at all, choose the Keep at full value option at the bottom of the list: 
    asset expense out.png#asset:999
  7. Click Save & Close. Your current asset will appear in the assets table.

Editing or deleting an asset #

To edit an asset:

Click on the name of the asset in the table:

edit-asset.jpg#asset:1763

Make any desired changes in the overlay that appears, and click Save & Close when you're finished.

To delete an asset:

Hover over the trash can icon at the bottom of the overlay. Click Delete and then Confirm:

confirmdelete (1).gif#asset:1028


Where does this entry appear in the financial statements? #

Assets can be entered as Current Assets or Long-term Assets, and these two entries appear in different parts of the financials. In the Profit and Loss table, only the depreciation and amortization of an asset will be listed, as this is the only part of the asset that's considered an expense of daily operations. 

The amortization of a current asset will appear under Operating Expenses in the P&L, as shown below:

assets-current-amort-pandl.png

The depreciation of a long-term asset will appear in the P&L under Depreciation & Amortization, as shown below:

asset-pandl.png

In the Balance Sheet, a current asset will appear as "Other Current Assets," with its value decreasing month to month as the asset is amortized:

assets-current-balancesheet.png

A long-term asset appears in the Balance Sheet as shown below. You can see the value of the asset and the depreciation on separate lines:

assets-longterm-balancesheet.png

In the Cash Flow table, both short-term and long-term assets will appear as shown below. The value of the asset purchase appears as a negative cash flow, and the Depreciation & Amortization appears as a positive cash flow. This doesn't mean depreciation is a source of income. Instead, the positive depreciation amounts are adjustments to the cash value of the asset:

assets-longterm-cashflow.png