Setting up equipment assets for new business

[Yawar Amin]

This is an interesting thread :-)

On Sun, Jun 28, 2009 at 12:44 AM, Cam Ellison <cam at ellisonet.ca> wrote:

> John Jason Jordan wrote:
>
>> I have a new business into which I am investing $2,000 cash and $33,000
>> (formal written appraised value) of equipment.
>> 1) Setting up the cash was no problem, but I can't figure out how to
>> set up the equipment. Note that the equipment consists of eleven items,
>> five of which must be depreciated on one schedule, four on another
>> schedule, and two on a third schedule. Therefore, I need to enter the
>> items individually somehow. After setting it up the balance sheet
>> should show a $35,000 net worth of the business.
>
>
Hi John,

I think each item of equipment needs to have its own account--maybe
sub-accounts under Assets:Fixed Assets:Equipment.


> I created an asset account called "Equipment." If I enter an item in
>> the Increase column (which I assume is the debit column, since it is on
>
>
If you're familiar with the debit and credit accounting terms, I highly
recommend setting Gnucash to display those by default instead of `Increase'
and `Decrease': Edit > Preferences, Accounts tab, Labels, check `Use formal
accounting labels'.

the left), when I hit enter to add the entry GnuCash automatically adds
>> a credit for the same amount in the Equipment account, leaving
>> Equipment with a zero balance. I can't figure out where the offset to
>> the debit for a new equipment item should go.
>
>
Do you have any equity accounts set up? They may be arranged simply like
this, depending on your needs:

Equity
 Contributions
 Retained Earnings

Then, to set the value of your equipment in their accounts, you would debit
each equipment account and credit Equity:Contributions.


> What you need to do is set up an account for each piece of equipment, then
> set up two sub-accounts under each.  In one you put the original appraised
> value.  In the other, which is a "contra" account you put, annually, the
> amount of the depreciation.  You'll have to calculate that, but it can be
> done when creating the transaction.  So you'd have a tree like this:
>
> Equipment----
>                    |
>                    Item 1
>                            |-------Original Value
>                            |-------Depreciation
>                    Item 2
>                            |-------Original Value
>    etc.
>
> The account for each item will always show the current depreciated value.


Cam, this is an interesting approach. I remember learning something about
contra accounts in basic university accounting classes. Is this the
traditional way of dealing with depreciation in the books? I would just
directly credit each equipment account on a regular basis to follow the
depreciation schedule. In fact, see below.

 2) Assuming I can figure out the above, how do I set the depreciation
>> schedule for each item? Or do I wait to do that until year-end when I
>> will want to post the depreciation?
>
>
I would just set up scheduled transactions to credit each equipment account
according to its own depreciation schedule. It would all happen
automatically--but Gnucash would of course ask my permission each time to
actually create the transaction.

Do this annually.  You can calculate it directly in the transaction.  The
> other account in the transaction should be Expenses:Amortization or some
> such.
>
> HTH
>
> Cam


Best,

Yawar