Capital Assets

The Capital Assets building block tracks long-term purchases and calculates depreciation automatically. Assets and depreciation expenses flow through to your financial statements.

Video Tutorial

What Are Capital Assets?

Capital assets are long-term investments in your business that:

• Cost a significant amount (typically over $1,000)
• Provide value for more than one year
• Are depreciated over time for accounting purposes

Preset Categories

Creating a Capital Asset

1. Navigate to Building Blocks → Capital Assets in the sidebar
2. Click + Add New Capital Asset
3. Fill in the form:

Category: Computer (or Equipment, Furniture, Other)
Description/Details: Office laptops
Purchase Date: March 2024
Original Cost (Pre-Tax): $15,000
Depreciation Method: Declining Balance
Depreciation Rate: 55% (auto-set for Computer)
Half-Year Convention: Apply Half-Year Rule

4. Click “Create Asset”
5. View the depreciation chart and schedule

Depreciation Methods

Profitual supports two depreciation methods:

Declining Balance

The declining balance method applies a fixed percentage to the asset’s remaining book value each year. This results in higher depreciation expenses early in the asset’s life, decreasing over time.

Formula:

Depreciation Expense = Book Value × Depreciation Rate

Where Book Value = Original Cost − Accumulated Depreciation

Example ($15,000 computer at 55% rate):

Straight-Line

The straight-line method spreads the cost evenly over the asset’s useful life. Each year has the same depreciation expense, making it simple to predict.

Formula:

Annual Depreciation = Original Cost / Useful Life

Example ($15,000 asset over 4 years):

$15,000 / 4 years = $3,750 per year

• Default useful life: 4 years
• Adjust based on asset type and expected service life

Half-Year Convention

The half-year convention adjusts the first year’s depreciation to account for mid-year purchases.

• Apply Half-Year Rule: Take only half the normal depreciation in the purchase year (assumes asset was placed in service mid-year)
• No Half-Year Rule: Take full depreciation from the purchase date

Example (Straight-line, $15,000 over 4 years with half-year rule):

Asset Disposal

When an asset is sold or retired:

1. Select the asset and click edit
2. Toggle “Mark as Disposed”
3. Enter the Disposal Date
4. Save to record the disposal on your Balance Sheet

This means that from the disposal date onward, that asset is considered to have fully depreciated in value.

Impact on Financial Statements

Capital assets affect multiple statements:

Balance Sheet

• Capital Assets shows the total value of all your assets.
• Less: Accumulated Depreciation shows the running total of the depreciation for all of your assets. This is subtracted from the Capital Assets line to represent the current value of all assets.

Income Statement

• Depreciation is shown in the EBITDA table on a month-to-month basis. It is subtracted from your Earnings as part of the calculation to determine your Profit (Loss), also known as your Net Income.

Cash Flow

• Full purchase price shows as investing activity when bought
• Depreciation is a non-cash expense (added back in operating activities)

Planning Capital Expenditures

When planning major purchases:

1. Time purchases strategically - Consider cash flow impact
2. Plan for replacement - Equipment doesn’t last forever
3. Consider financing - See Debt for equipment loans
4. Budget for maintenance - Add related operating expenses

Related Blocks

• Operating Expenses - Ongoing costs like maintenance
• Debt - Financing for asset purchases