How to record the purchase of a capital asset before your business’s start date

This article explains how to record the purchase of a capital asset that your business bought before it started trading.

The way you record the asset purchase is the same regardless of whether you’re preparing your accounts using accruals or cash basis accounting. If you’re unsure how to record the capital asset purchase, please ask your accountant.

If the capital asset was bought before your business began to trade, or before you incorporated your limited company, don’t enter the asset on the date you made the purchase and don’t enter the value you bought it for.

Instead, if your company start date is dated before your FreeAgent start date, and the expense has already been accounted for, enter the market value of the asset as of the date you transferred it to the business, as part of your opening balances.

If the expense hasn’t already been accounted for, enter the market value of the asset as of the date you transferred it to the business, as an out-of-pocket expense dated on or after your FreeAgent start date.

If your company start date and your FreeAgent start date are the same, enter the market value of the asset as of the date you transferred it to the business, as an out-of-pocket expense dated on or after this date, depending on when you transferred the asset to the business.

Please note that capital assets that are entered as opening balances will not appear in your ‘Capital Assets’ report and FreeAgent will not calculate any depreciation on the asset. Therefore, you would need to post additional journal entries for depreciation each year if required.

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