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Level 1

Recording fixed asset paid for by parents and confused about VAT

Hey. I want to make sure I'm recording this correctly because my parents paid for the asset and I'm not sure what to do with VAT. I checked the community for how to set up a fixed asset and set it up for depreciation. I don't have an accountant but when my self-assessment date comes around I'll hire one to help with recording the depreciation right etc.


I'm a sole trader, only had my business for about a month, and NOT vat registered but the supplier is so I paid vat on the device and the shipping. Device (£795) + VAT (£159) = £954. Shipping (£8.95) + VAT (£1.79) = £10.74. Total paid: £964.74.


Here's my step by step:

1. Went to Chart of Accounts and clicked new. Account Type: Tangible Assets, Detail Type: Machinery and Equipment, Name: Celluma LED Device, didn't select a default VAT code, ticked Track Depreciation box, Original Cost: £964.74 as of: date I purchased it.


Should I put the full amount I paid including shipping and VAT, or just the device cost: £795? And if I just put the device cost, how should I then account for the rest of the amount I actually paid?


2. So now in my Chart of Accounts I have the Celluma LED Device and the two sub-accounts: Depreciation and Original Cost. The journal entry is split with the device as a debit and Opening Balance as a credit. Am I right in thinking it comes up on the balance sheet but not P&L because it's not an expense?


Next issue is the fact that my parents sent me the money and I paid from my personal account, because I hadn't set up a business bank account yet. For other expenses that were paid like this, I've recorded the expense as journal entry with the first line using the correct expense Account and the amount goes in the debit column, then on the second line I've put Owner's Equity Account and the same amount in the credit column. I haven't created expense/cheque to reimburse to Owner's Equity for these because I'll be paying my parents back in the future when I've made enough profit. Is that correct?


So how do I account for the fact that the fixed asset wasn't paid for out of the business bank account linked to Quickbooks? Does this actually matter?


Would be grateful for any help! Thanks



Recording fixed asset paid for by parents and confused about VAT

Hello StephSW, thank you for contacting the Community about the VAT on the fixed asset paid for by your parents. We'd suggest speaking to either HMRC or a trained accountant for advice on this. We can't give advice we can only state how to use the product itself. We of course welcome any Community users we have had the same query add to this thread with what they did in this situation as well.

Level 1

Recording fixed asset paid for by parents and confused about VAT



As you are not VAT registered, don't worry about splitting out the VAT from the cost, just post the full amount paid.


The credit for the journal should be posted to a new long-term loan account where it will sit on the balance sheet until you repay some or all of it.



Level 1

Recording fixed asset paid for by parents and confused about VAT

Thank you for your help. 

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