Asset Category
An Asset Category in ERPNext is a classification system used to group different types of assets held by a company. It is significant in standardizing the way assets are accounted for, monitored, and depreciated within the organization. Asset Categories facilitate efficient asset management by grouping together similar assets under a single set of accounting and operational rules.
The first process of configuration of the Asset Management module is generally defining and creating Asset Categories. As an example, computers, laptops, and servers may be listed under an Asset Category, such as "Electronic Equipment" and vehicles under an Asset Category, such as "Transport Assets". Organizations can treat all accounting and report alike by defining them.
Each Asset Category provides you with the ability to specify default depreciation methods, depreciation frequency (periodicity), chart of accounts, and cost centers. These defaults will be automatically applied to any new asset added to the category, thus eliminating much manual setup and ensuring compliance with your accounting policies. This includes the facility to select between Straight Line, Double Declining Balance, or manual depreciation methods.
ERPNext also has the capability of facilitating Capital Work in Progress (CWIP) accounting at the Asset Category. It is very handy in tracking assets that are still in construction or assembly and how to keep them under a temporary account until they are fully operational and ready to be capitalized. This is based on normal accounting rules on dealing with fixed assets whilst in construction.
Note: Default depreciation-related Accounts and Cost Centers can also be set at the Company level, which will be inherited by all Asset Categories unless overridden.
To view or edit Asset Categories, go to:
1. Steps to Create an Asset Category
- Input a Name for the Asset Category (e.g., "Electronic Equipment", "Furniture", "Vehicles").
- Select/ Select or determine the technique of depreciation, recurrence of depreciation and general ledger accounts, which are going to be used on an asset, depreciation and accumulated depreciation.
- Optionally, mark the check box for "Enable Capital Work in Progress Accounting" if you wish to account for construction-stage assets in a temporary balance sheet account. This provides correct financial treatment prior to capitalization of the asset.
- Establish other defaults such as Cost Center and Expected Useful Life (where applicable).
- Hit Save to save the Asset Category.
After saving, this Asset Category is ready to be used when creating or importing new assets, thereby reducing asset creation time and ensuring consistency.
1.1 More Options When Creating an Asset Category
As you create an Asset Category in ERPNext, you can also set up more options to provide proper handling of asset accounting, particularly during the acquisition and usage life cycle. These advanced options affect how ERPNext behaves when depreciation and asset capitalization are done in the general ledger.
1. Enable Capital Work in Progress (CWIP) Accounting
When this is activated, the accounting entries of assets that fall in this category are posted in the Capital Work in Progress (CWIP) account by ERPNext until they can be utilized. This applies to those assets that are not operational yet a purchase- such as a piece of equipment that is in the process of being configured or an office furnishing yet to be assembled.
Once the 'Available for Use Date' is established, the system debits the asset value from the CWIP account to the Fixed Asset account and begins depreciation according to the predefined schedule.
If your company utilizes assets immediately after they are acquired, this feature can be turned off to avoid CWIP treatment.
2. Non-Depreciable Category
If this checkbox is marked, ERPNext will exclude depreciation for all assets belonging to this category. That is:
- Depreciation-related accounts are not required.
- No depreciation schedule will be generated.
- The system assumes the asset does not lose value over time.
This is especially applicable for non-depreciable assets, such as land, heritage items, or investment properties that are retained at cost indefinitely. If depreciation needs to be applied later, simply disable this setting and reconfigure the depreciation accounts accordingly.
2. Features of Asset Category
ERPNext provides various features to support fine-grained financial and accounting configuration for every asset category so that organizations can meet intricate reporting necessities and bookkeeping standards.
2.1 Finance Book Details
In companies where various financial reporting mechanisms are utilized (e.g., tax vs internal reporting), ERPNext supports assigning a Finance Book for every Asset Category. This helps in tracking depreciation in different ledgers for statutory or management needs.
The following settings may be customized:
Depreciation Method: Select how depreciation is to be computed — Straight Line, Double Declining Balance, or a Custom/Manual Method. The option dictates how asset value is decreased over time.
Frequency of Depreciation (Months): Determines the frequency interval (in months) for when depreciation entries are posted. As an example, the settings will book yearly depreciation entries if it's set to 12, while 1 will allow monthly depreciation.
Total Number of Depreciations: Determines the number of depreciation accounts that will be posted over the useful life of an asset. This determines the asset's depreciation run and lifespan in ERPNext.
Rate of Depreciation: Sets the percentage by which the asset loses value every period. This is calculated automatically on the basis of the selected depreciation method and schedule, but may be manually set as appropriate.
Multiple books of finance can be assigned to one asset if your business must depreciate under various accounting standards.
2.2 Accounting Details
ERPNext provides the option to define ledger accounts for each Asset Category so that all financial activities related to the assets are properly mapped to your business's Chart of Accounts. The following fields can be defined:
Company: Choose the company under which this asset category will apply. This is convenient for multi-company environments where various accounting rules might be used.
Fixed Asset Account: The general ledger account in which the value of the asset will be capitalized when it is labeled as "available for use."
Accumulated Depreciation Account: Records the amount of depreciation that has been charged against the asset over a period of time. It is a contra-asset account and is utilized to counterbalance the value of the fixed asset on the balance sheet.
Depreciation Expense Account: Symbolizes the periodic expense of depreciation on the income statement. It signifies the cost of utilization of the asset over the period of time.
Capital Work In Progress (CWIP) Account: An accounts payable type of temporary balance sheet account in which asset values are stored before they can be made operational. It is utilized only if CWIP Accounting is enabled.