Software: QuickBooks accounting software
In Equipment Rental business, the equipment that you purchased are your assets, which you need to track the depreciation of it useful year. Besides, you need to keep track of the ins and outs of the equipment so to have a good feel of the stock availability.
If you are using QuickBooks, how are you going to track the cost and depreciation of the asset to fulfill the accounting requirement and at the same time tracking of the stock movement of your equipment?
Assuming you purchase an equipment at the cost of $9,000.00 and depreciate it over three years at $3,000.00 per year; and you are going to rent it out at $300.00 per day.
Before you recorded the transactions, first you create a set of fixed asset account for your equipment, assuming we name it as “Equipment ONE”, so, the accounts will be:
Cost – Equipment ONE
Accumulated Depreciation – Equipment ONE
I preferred to create the fixed asset accounts as above so I am able to view the cost, accumulated depreciation and net book value of the individual asset in my balance sheet report. Some user may preferred to create it as:
In this method, both the cost and accumulated depreciation will be sharing the same account (Equipment ONE). When printing of Balance Sheet, report, you can simply use the collapse function to show just the Equipment assets account instead of breaking down into individual assets.
Next, in the item list, you need to create a stock item for “Equipment ONE”. This is to track the movement of Equipment ONE; the income account used for Equipment ONE will be Disposal of Fixed Asset (an Other Income type of account). So, in the event when Equipment ONE is sold, the sales value will be automatically posted to the Disposal of Fixed Asset account.
Besides, you are require to create a Service item, such as “Rent – Equipment ONE”, this is to be used in the Sales Invoice (you use this item to charge your customer), and the account associated with this Service item (Rent – Equipment ONE) will be the Sales Income account.
When entering bill from the supplier of Equipment ONE, in the expenses tab, we use the fixed assets account, Cost – Equipment ONE, with the purchase value of 9,000.00. Next, at the items tab of this bill, we use Equipment ONE stock item with a quantity of 1 but leave the cost as 0.00.
In this way, the double entry for this bill will be:
Debiting Cost – Equipment ONE account (Fixed Asset account): 9,000.00
Crediting Accounts Payable account: 9,000.00
Debiting Inventory Assets account: 0.00
Note: Inventory Assets account is involved in this transaction is due to Equipment ONE stock item was used. Since we didn’t input any amount in the cost field of this stock item, the amount debited to Inventory Assets account is 0.00.
If you were to view your stock status by item report, you will see that you have 1 quantity of Equipment ONE in the stock on hand column.
Invoices – renting of equipment
Assuming you rent out Equipment ONE for three days, you need to create two invoices. First invoice will be using the “Rent – Equipment ONE” service item, with the quantity of 3 (three days) and the amount of 900.00 (300.00 x 3 days). This invoice will be given to the customer during rental service for them to make payment to you. The double entry for this sales invoice will be:
Debiting Accounts Receivable account: 900.00
Crediting Sales Income account: 900.00
The second invoice is for internal use, at the detail line, you use Equipment ONE stock item with quantity of 1 and amount of 0.00. This invoice is to track the out going of the equipment and the stock on hand will be 0 after invoice is recorded. Since there isn’t ant value in this transaction, no values will be posted to the relevant accounts.
Credit Note – equipment returned
In the event when equipment returned, you need to create a Credit Note (Adjustment Note) to credit back the Equipment ONE with the amount of 0.00. This quantity will be added back to your stock on hand. Like the second invoice that you have created earlier, this is for internal use only.
Monthly or yearly depreciation for Equipment ONE will be recorded via a General Journal Entry. The double entry will be:
Debiting Depreciation Expense (Expense account)
Crediting Accumulated Depreciation – Equipment ONE account (Fixed Asset account)
Deposal of Fixed Asset
In the event when you sell off your equipment, you need to pass a journal to revert your fixed asset and follow by an invoice to bill your customer.
The double entry for your disposal of fixed asset will be:
Debiting Accumulated Depreciation – Equipment ONE
Crediting Cost – Equipment ONE
Debiting Disposal of Fixed Asset (Other Income account type)
Equipment ONE stock item will be used in the detail line of the invoice for sale of fixed Asset with a quantity of 1 and a sale amount. The double entry for this sales invoice will be:
Debiting Accounts Receivable
Crediting Disposal of Fixed Asset account (Other Income type of account)
In the Balance Sheet, the Equipment ONE fixed asset account will be zero off and the Profit and Loss report will show the net income/loss for the sale of Equipment ONE under the Disposal of Fixed Asset account.