A fixed asset is something the business buys to use over several years rather than to sell or consume within the year: a building, a CNC lathe, a delivery van, a run of laptops. In the nominal ledger, each class of fixed asset needs two balance sheet accounts: one that holds the original cost and one that collects the accumulated depreciation written off against it. The net of the two is the carrying amount that appears in the accounts.
Which items to capitalise in the first place, and over how many years, is a policy decision covered in our capitalisation policy guide. This page deals with the accounts those items land in.
Pairing cost and depreciation accounts by class
Most small businesses need four or five classes. Grouping them so they match the headings of the statutory balance sheet saves work at year end.
| Cost account | Paired with | Typical contents |
|---|---|---|
| Land and buildings – cost | Buildings – accumulated depreciation | Freehold property, long leasehold property, building improvements |
| Plant and machinery – cost | Plant and machinery – accumulated depreciation | Production machines, workshop equipment, forklifts |
| Fixtures and fittings – cost | Fixtures and fittings – accumulated depreciation | Office furniture, shop counters, shelving, lighting installations |
| Motor vehicles – cost | Motor vehicles – accumulated depreciation | Vans, lorries, company cars |
| Computer equipment – cost | Computer equipment – accumulated depreciation | Laptops, servers, networking kit |
Land is normally not depreciated, so if you own freehold property, record the land element separately from the building in the asset register even if both sit in one cost account. Numbering is up to your software; see our note on nominal codes rather than copying a code list from elsewhere.
Worked example: buying a van
A VAT-registered plumbing company buys a van. The dealer’s invoice shows:
- van £28,000 plus VAT £5,600
- signwriting £900 plus VAT £180
- road fund licence (vehicle excise duty) £335, no VAT
- total payable £35,015, financed from the business bank account
Cost includes everything needed to get the asset ready for use, so the signwriting goes into the van’s cost. Vehicle excise duty is a running cost of the year, not part of the asset. VAT on a van is recoverable in the normal way for a fully taxable business.
| Account | Debit | Credit |
|---|---|---|
| Motor vehicles – cost | £28,900 | |
| Motor expenses | £335 | |
| VAT control account | £5,780 | |
| Bank | £35,015 |
Had the vehicle been a car available for private use, the input VAT would normally be blocked and the £5,600 would be added to the cost instead of going to the VAT account. That one difference changes both the asset value and the depreciation charge, so check the vehicle type before posting.
What should never sit in a cost account
- Repairs and servicing. Replacing worn tyres or a clutch restores the asset; it does not improve it. Post it to repairs and maintenance.
- Finance charges. Interest on a hire purchase agreement is a cost of borrowing. The asset goes in at its cash price and the interest is spread over the agreement.
- Deposits paid before delivery. Until the asset is delivered, a deposit is a prepayment or a payment on account, not plant in use.
- Low-value purchases below your threshold. If your policy says items under a certain value are expensed, follow it consistently.
- Disposals left in place. When you sell or scrap an asset, remove both its cost and its accumulated depreciation and post the difference to a gain or loss on disposal.
Where the balances end up
Under the Companies Act balance sheet formats, these accounts form tangible assets within fixed assets. The statutory sub-headings are land and buildings; plant and machinery; fixtures, fittings, tools and equipment; and payments on account and assets in the course of construction. Vehicles and computers are usually folded into one of the two middle headings, which is why the notes to the accounts often show more columns than the balance sheet does. Micro-entities under FRS 105 show a single fixed assets line, and small companies can choose an abridged balance sheet, but the ledger detail by class is still what the accountant uses to prepare the fixed asset movements.
Capital allowances are a separate calculation
The cost and depreciation accounts produce the accounting figures. For corporation tax, depreciation is added back and capital allowances are claimed instead, on pools and allowances that follow tax rules rather than your useful lives. Keep the tax computation outside the nominal ledger; do not post allowances as journals. Our guide to capital allowances explains how the claim is built.
Checking the accounts against the register
Every month or quarter, the total of each cost account and each accumulated depreciation account should agree to the fixed asset register. Differences usually come from an asset bought on a supplier invoice that was coded to an expense account, a disposal posted only to the bank, or depreciation calculated in a spreadsheet and never journalled. Once a year, compare the register to what is physically there; assets that have gone missing need to be written off rather than depreciated for ever.
In Nexbal each asset sits in its own fixed asset register under a standard balance sheet account and depreciates from there; the chart is fixed, so you map these categories to it rather than create new account numbers. You can test the register in a free Nexbal trial.