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Record Capital Expenses
Record Capital Expenses

How to record capital expenditures in DoorLoop

Samuel avatar
Written by Samuel
Updated over 10 months ago

Overview

Expenditures on capital items like property, fixtures, and equipment are regarded as investments within your business. As a result, these expenses aren't immediately subtracted; rather, they are spread out and deducted (known as depreciation) over a span of years as stipulated by the tax code. To manage this effectively, you will establish dedicated entries in your chart of accounts. These entries will serve to monitor these investments and the corresponding depreciation, ensuring accurate tax-related record-keeping.

The Steps

Step 1 - Create the capital expenditure asset account

You'll first want to add a Capital Expenditure Asset account to your Chart of Accounts. Start by adding a separate asset account for each type of capital expenditure. Remember, capital expenses are considered investments in your business, so you'll need to create an asset account for each type of expenditure. For example, if you spend $5,000 to purchase a stove on one of your properties, you might create an asset account called "Capital Expense - 1900 North Bayshore Drive", which is the property that the new stove will be on.

  1. To create a capital expenditure asset account, click Accounting on the main menu and then click Chart of Accounts.

  2. Click the + New Account at the top right corner.

  3. On the New Account window, enter the following information:

    • Type - select Asset -> Fixed Asset

    • Account Name - you can enter "Capital Expense - 1900 North Bayshore Drive" as an example. (We enter the address number for more detailed record keeping.)

  4. Click Save to continue.

Step 2 - Create a sub-account for the fixed asset

In the next step, we'll need to create a sub-account for the fixed asset, in this case, it's equipment that we are tracking. In other cases, you might be tracking the building or land. This is just an example, and your use case might be different. (We suggest consulting with an accountant on this.)

  1. To create a new sub-account for your fixed asset, click the + Create New button again at the top right corner.

  2. On the New Account window, enter the following information:

    • Type - select Asset -> Fixed Asset

    • Account Name - you can enter Fixed Asset - Stove (1900) as an example.

  3. Then toggle on "This is a sub-account" and use "Capital Expense - 1900 North Bayshore Drive" as the parent account.

  4. Click Save to continue.

Step 3 - Create the accumulated depreciation sub-account

Lastly, if you plan on tracking the depreciation of the fixed asset (stove), you will need to create the Accumulated Depreciation sub-account. This will be used to record the accumulated reduction in the value of an asset over time.

  1. To create an accumulated depreciation sub-account, click the + Create New button again at the top right corner.

  2. On the New Account window, enter the following information:

    • Type - select Asset -> Fixed Asset

    • Account Name - you can enter Accumulated Depreciation - Stove (1900) as an example.

  3. Then toggle on "This is a sub-account" and use "Capital Expense - 1900 North Bayshore Drive" as the parent account.

  4. Click Save to finish.

Step 4 - Create the depreciation expense account

Next, add an expense account for each type of capital expenditure to track the amount being deducted (i.e. expenses) in a given tax year. For example, you might create an expense account called "Depreciation - Stove (1900)".

  1. To create a depreciation expense account, click Accounting on the main menu and then click Chart of Accounts.

  2. Click the + New Account at the top right corner.

  3. On the New Account window, enter the following information:

    • Type - select Expense

    • Account Name - you can enter "Depreciation - Roof Replacement" as an example.

  4. Click Save to finish.

Step 5 - Record the capital expenditures

There are a couple of ways you can record the capital expenditure:

  • If you're recording it as an expense with a vendor payment, use the Capital Expense - 1900 North Bayshore Drive: Stove (1900) sub-account for the Category. Enter the Amount for the full value of the fixed asset.

  • If you're recording the expense as a journal entry, you'll credit (reduce) the value of the bank account and debit (increase) the value of the Capital Expense - 1900 North Bayshore Drive: Stove (1900) sub-account.

Step 6 - Depreciating the capital expense


Calculate the amount of the depreciation.

You'll first need to calculate the amount using the appropriate depreciation schedule per the tax code. There are different schedules of depreciation that may apply. If you're not sure which is right for you, consult your tax accountant.

Once you know the amount of the depreciation

Record a General Journal Entry. Credit (reduce) the capital expense asset account (stove - accumulated depreciation) and debit (increase) the depreciation expense account.

Disclaimer

The information provided is not offered by a licensed accountant and is intended for general informational purposes only. It is crucial to verify local accounting laws and regulations independently, as they vary. This information should not be considered a substitute for professional advice and does not offer Generally Accepted Accounting Principles (GAAP). For accurate guidance, consult a licensed accountant familiar with your jurisdiction's specific requirements. The author and publisher are not liable for any damages or losses resulting from reliance on this information.

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