This component allows you to model purchasing valuable items for the business. You can choose to depreciate its value over time and sell it at a later date if you choose.
To set up a new asset purchase you need to enter a purchase price and choose whether you want to depreciate it or not.
Depreciation represents the item losing value over time.
- % of initial value This will reduce the value of the asset each period by a percentage of the original purchase price.
- % of latest value This reduces by a different amount each period based on the latest value.
- Straight line This looks at the duration of the asset and will reduce the value of the asset over the course of the assets life to zero.
- Manual This allows you to to enter your own custom depreciation amount each period
Selling your asset
Once you have entered your initial setup you can choose whether to keep or sell the asset at a later date. Selling will provide some income and remove the value of the asset from your balance sheet.
- Keep asset You'll keep the asset forever and never sell it.
- Sell at depreciated value Choose a date to sell the asset on. You'll receive some income based on how much the original purchase price has depreciated by the time of sale.
- Sell at custom value Choose a date and a custom amount to sell the asset.
- Write off This will remove the asset value from your balance sheet but you won't receive any money for selling (you are just throwing it away).
Note when you choose a date to sell the asset, it will automatically adjust the asset duration length on the timeline such that the end date on the timeline matches when the asset is sold.
The difference between an operational cost and an asset cost
Both the operational cost and asset components can be used to make purchases for the business. They will both have cost amounts that you enter, so what is the difference?
An operational cost can be set up as a one-off or regular cost, you'll see this cost appear on your cash flow and profit & loss reports. An asset can only be set up as a one-off cost. Again, you'll see this appear on your cash flow and profit & loss reports but you will also see the value added to your balance sheet representing it's worth to your business.
The easiest way to describe the difference is an example. Let's say you buy a van for your business. You would use an asset component to represent this purchase, putting both the cost and value on your reports because a van is worth something to you and could be sold at a later date if you wanted to. You could then use an operational cost component to cover the petrol costs of your van, entering in a regular amount each period. This would put a regular cost on your reports which is all you need to model petrol.