RFC: Chapter 8 Tutorial/Guide

[Matthew Vanecek]

On Fri, 2003-07-11 at 01:06, Chris Lyttle wrote:
> On Thu, 2003-07-10 at 08:43, Jon Lapham wrote:
> 
> depreciation. I think, though, in section 8.2.3 you didn't depreciate
> your asset correctly. Looking at my accountant's financial reports, he
> includes depreciation as an _asset_ in the balance sheet which is in the
> negative to offset the value of the asset. If I'm correct about this (I
> may be wrong) Asset Cost would have the initial value and the
> depreciation would be put into the Accumulated Depreciation. The
> Depreciation Expense account would be used for expenses such as repairs
> on your car that increase its value (slightly) and therefore change its
> depreciation schedule. For example, if I buy a car it starts to
> depreciate the day I buy it. If I then go out and spend $$$ putting
> chrome wheels and a turbocharged engine in it this is an expense I pay
> out that increases it's resale value but the car in general will keep
> depreciating so the expense is 'periodic'.
> 

Just my little $.02, about the above statement.  Depreciation is always
an expense, and recognizable as such for tax purposes.  The IRS really
doesn't care about chrome wheels, etc (unless, are they tax
deductible?).  Thus, the Depreciation Expense account would be strictly
for recording your depreciation, and not for recording the little extras
you buy.

Repairs on cars, or houses, or buildings, would go into a maintenance
expense account.  Chrome wheels and little blue neon lights would go
into a "feel good" expense account (that you can consider when trying to
sell the vehicle).  Capital improvements (e.g., a new driveway, or a new
engine for your airplane, or renovating your warehouse) would go to a
capital improvements account, with the resulting appreciation going to
an appreciation (unrealized gains) account.

At least, that's the way I learned it in accounting class....and antique
and show cars may rate as a capital investment. ;)

Different accountants do things differently.  As long as it all
balances, and satisfies the tax man, it probably doesn't matter, But for
a tutorial, you probably want to make sure you stick to the GAAP.  You
can find a copy at your local bookstore, probably.

ciao,
-- 
Matthew Vanecek
perl -e 'print $i=pack(c5,(41*2),sqrt(7056),(unpack(c,H)-2),oct(115),10);'
********************************************************************************
For 93 million miles, there is nothing between the sun and my shadow except me.
I'm always getting in the way of something...