Partnership & "Placed in Service"

[Lion EA]

Yes, it's the same partnership. And, it's my son and DIL's partnership, so a freebie. I can't believe I haven't had this situation before, but as I said in my other post, I prepare only about four business returns.

Partnership bought a food truck in 2021, but placed it in service this summer 2022. I know not to depreciate an asset not yet placed in service.

But, again, the BS is my weak point. The money is out of the bank account, but I don't put the truck on the return yet, right? How do I balance the BS?

(I was doing well with this partnership for years, because I started when they started, with all zeros to open, and had good detail from the partners. Now, I get a problematic list, bank closing balance, and two new items for my limited experience!)

Thank you to all who can help me get unstuck on this 1065.

[Margaret CPA in OH]

I haven't done business returns for a while but why wouldn't the truck be on the BS as an asset?  Depreciation or expensing of the asset begins when placed in service but it is still an asset currently, just not yet depreciable.  I should think.

[Lion EA]

Well, Margaret, that makes lots of sense!

Now I need to figure out how to get it there if not from the depreciation schedule...

[Margaret CPA in OH]

You stated that the funds were gone from the checking account.  If cash was credited, where is the debit?  It should be an asset, right?  I'm not clear how the asset could be on a depreciation schedule only.  What software is being used?  Of course the depreciation is an expense debit and crediting the asset.  I must be missing something here as it seems basic accounting, you know, T squares (I'm old school ).

[Lion EA]

The client does no accounting, just gives me a list. (She used to at least use Quicken and then an Excel spreadsheet, but so few transactions during Covid that she's been emailing me lists the last couple tax seasons.) I'm trying to do the tax reporting from her notes. I use ProSystem fx which pulls assets and accumulated depreciation from the depreciation schedule. So, If I'm not depreciating something that's not been placed in service, it doesn't flow to Schedule L unless I do some overwriting.

She did give me her closing bank balance; they paid cash for the food truck. She gave me a list of expenses, and the new food truck is on that list -- but it's not in service yet. Her income list includes money she/partners put in and RRF as well as actual income. Her expense list includes the truck and petty cash on hand as well as actual expenses. Just trying to move all her items to the right 1065 schedules. And, I don't know where to put something that was purchased but not used.

My quandary is not that it's on a depreciation schedule only, but that it should NOT be on a depreciation schedule at all. Is it an asset if it wasn't used in business during 2021? It's not a depreciable asset.

[jklcpa]

I'd enter this on the balance sheet in the Other Asset section with the caption "Asset Not Yet In Service".

Then in 2022, make a journal entry to debit the fixed asset account, credit the Other Asset to remove it, and put it on the depreciation schedule.

[Lion EA]

I was looking at the Other assets (attach statement). It's going into service now, so I know I can make the adjustments to move it on the 2022 return.

(This is my son and DIL. It's always the freebies that take me the most time and anguish!!)

Thanks so much, Margaret and Judy.

[Lee B]

I have run into this several times before and I just debit the normal fixed asset account and enter it on the depreciation schedule when the asset goes into service.

Works just fine for me.

[Lion EA]

Again, I'm not doing their bookkeeping. Are you saying to overwrite to include it on the balance sheet as a normal depreciable asset for 2021? (Depreciation will begin in 2022.)

I'm not giving them journal entries. They have a list from the checks written and from deposits made during the year. They have no fixed asset account, because they have no "books" except for the list generated after the fact from the business checking account.

[Lee B]

I use Drake's Depreciation module which is part of their tax software, so I can either set it up with the placed in service date blank

or under depreciation Method I can select "Not Depreciable" then either enter the placed in service date the next year or change the depreciation method.