Definitive Business Plan, Second Edition, The

Accounting for fixed assets

This is how you account for fixed assets in your monthly projections. Suppose that:

• in October you will acquire a clumping machine for $120000 (see Fig. 9.1 );

• it has an expected life of five years (60 months);

• you are using the straight-line depreciation method.

The accounting entries are as follows.

1. In October you debit fixed assets – machinery $120000 and assuming that you paid cash credit cash at bank by the same amount.

2. Every month commencing in November you debit $2000 (120000 divided by 60 months) to the operating expenditure account depreciation of machinery and credit the asset account fixed assets – depreciation of machinery with the same amount.

At the end of the first year:

• the (original) booked value is $120000; ...