Purchasing an Asset
The purchasing of an asset within ERPNext is comprehensively linked with both the Asset Management and Buying modules. You are buying new machines, office equipment, or IT hardware, ERPNext makes it possible to automate the creation of an asset, monitor accounting effect, and classify correctly from the time of buying.
To start a new asset buy, go through these preparatory steps:
1. Create an Asset Category
Prior to the creation or capitalization of an asset, establish an Asset Category where an item belongs. The category defines default depreciation procedures, accounting entries and finance book settings.
Example: In the case of laptops or desktops, you can design an Asset Category named IT Equipment that has a straight-line depreciation of 3 years.
2. Create an Item for the Asset
Go to the Item master and create an item which corresponds to the asset you are purchasing. Make sure that the following settings are ensured:
- Enable 'Is Fixed Asset': This instructs ERPNext that the item must be used as a fixed asset and therefore is eligible for depreciation and asset tracking.
- Uncheck 'Maintain Stock': Assets are not considered as inventory stock; they don't impact warehouse quantities.
Optional but highly recommended: Map the item to the appropriate Asset Category, which imports default depreciation parameters into any asset record created from using this item.
3. Auto Create Assets (Optional)
To facilitate auto processing, particularly when buying numerous similar items:
- Activate 'Auto Create Assets on Purchase' under the Item settings.
- On submission of a Purchase Receipt or Purchase Invoice, ERPNext will automatically create Asset records for every unit received/purchased.
- You will need to enter the Asset Location while receiving if this option is enabled.
When this setting is not enabled, asset records will have to be manually created after the purchase.
4. Continuing the Purchase Cycle for an Asset
After the initial steps of setup—like defining the Asset Category and setting up the Item as a fixed asset—are done, you can then use the normal Purchase Cycle in ERPNext to post the acquisition of the asset.
5. Asset Location in Purchase Documents
The same goes when creating a Purchase Receipt or Purchase Invoice which one should specify; the Asset Location directly on the Items table of the document. This provides the asset with the appropriate facility (e.g. Head Office, Warehouse or Manufacturing Plant) as soon as received.
If the product has the 'Auto Create Assets on Purchase' flag set, ERPNext will at the time of submission of Purchase Receipt automatically create one or more Asset records—quantity depending—based on the quantity.
You may then go to the Asset master to check and modify extra data such as:
- Asset Owner (Company/Supplier/Employee)
- Custodian
- Expected useful life
- Maintenance requirements
- Insurance details
- Depreciation schedule (if not pre-set through category)
6. Accounting Entries upon Purchase Receipt
The asset will be financially treated on receiving the asset depending on whether the Capital Work In Progress (CWIP) Accounting is turned on or off in the Asset Category involved:
1. When CWIP Accounting is Switched On:
Upon entry of the Purchase Receipt, ERPNext makes the following journal entries:
- Dr. Capital Work In Progress (CWIP) Account
- Cr. Asset Received But Not Billed (Liability Account)
At this point, the asset is not yet in use (because the "Available-for-Use Date" is established in the future). So, its value is temporarily retained in the CWIP account until it is capitalized. When the item available is ready to be used, the system initiates another process to:
- Cr. CWIP Account
- Dr. Correspondent Fixed Asset Account
This transfer oscillates that the asset exists as being capitalized and it can be depreciated.
2. If CWIP Accounting is Disabled:
Where the Capital Work In Progress choice is not selected, the account entry at the Purchase Receipt level will be:
- Dr. Fixed Asset Account (fixed in the Asset Category)
- Cr. Asset Received But Not Billed
In this case, the asset is captioned instantly on receiving and can be depreciated as soon as it has been tagged as available for use.
Purchase Invoice Posting
When the Purchase Invoice for the same item is submitted:
- The "Asset Received But Not Billed" account is debited (reversing the previous credit).
- The Creditor (Payable) account is credited for the supplier liability.
This provides for correct tracking of asset acquisition liabilities and reconciliation-free between receipt and billing.
Tip: When handling a high number of assets, you may want to create workflow rules to ensure asset fields (such as Available-for-Use Date or Location) are accurate and compliant when submitting Purchase Receipt.