If your business had been trading for a while before you started using FreeAgent, you may have bought a business asset in between your company start date and your FreeAgent start date. Here's how to record that asset in FreeAgent.
The asset would form part of your opening balances.
It's also likely to have some depreciation brought forward.
You need to put the original cost of all the assets your business bought between these two dates as a debit balance into code 601, using the sub-accounts for the different kinds of capital assets you might have. You can add new ‘Capital Asset types’ by following the steps outlined in this article. The depreciation that's built up so far on all those assets should be entered into the sub-accounts of code 605 ‘Depreciation Brought Forward’ as credit balances.
Each year you'd need to work out the depreciation on this asset, because FreeAgent can't do this for you automatically for assets that you bought before your FreeAgent start date. Your accountant, if you have one, should be able to help you with this.
You'd then post the depreciation as journal entries, debit code 460 Depreciation Charge, credit code 606 Depreciation in Year. Use the sub-account under code 606 depending on what kind of an asset this is. For example, if it's a computer, you'd post the depreciation credit entry to code 606-1.
I'd suggest you post these entries on the anniversary of the day you bought the asset.
Do this each year until the asset is fully depreciated, that is, until you've posted as much in depreciation for that asset as the asset originally cost.
Let's make it easier by crunching some numbers.
Mary is a self-employed web designer. Her company start date is 1st January 2017 and her FreeAgent start date is 5th April 2018.
She bought a new Mac for her business on 1st May 2017. It cost her £1,500 + VAT.
Mary's accountant tells her to depreciate this computer at £500 a year, to spread its value to the business over 3 years. So on 1st May 2017 Mary will enter depreciation of £500 into her old accounts system.
As part of the opening balances Mary puts into FreeAgent as at 5th April 2018, she will have:
601-1 Computer Equipment Brought Forward: Debit £1,500
605-1 Computer Equipment Depreciation Brought Forward: Credit £500
Mary will post journal entries dated 1st May 2018 to enter the next year's depreciation of £500, debit 460, credit 606-1. This takes the total depreciation posted for that asset to £1,000 (£500 in the opening balances, £500 by journal entry).
She will then post an identical set of journal entries dated 1st May 2019.
Once she's posted that set, she has posted £1,500 worth of depreciation, which was as much as the asset cost.
So she won't post any more journal entries to depreciate that asset.
Notice that Mary always uses sub-account 1 for her entries for this asset. This is because this sub-account is for computer equipment. If Mary were making entries for a filing cabinet, she would use sub-account 2, for a car it would be 3, and so on.