[Gnucash-changes] * more updates from David Harrison

[Jon Lapham]

Log Message:
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 * more updates from David Harrison

Modified Files:
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    gnucash-docs/guide/C:
        ch_dep.xml

Revision Data
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Index: ch_dep.xml
===================================================================
RCS file: /home/cvs/cvsroot/gnucash-docs/guide/C/ch_dep.xml,v
retrieving revision 1.3
retrieving revision 1.4
diff -Lguide/C/ch_dep.xml -Lguide/C/ch_dep.xml -u -r1.3 -r1.4
--- guide/C/ch_dep.xml
+++ guide/C/ch_dep.xml
@@ -16,28 +16,31 @@
 
  <sect1 id="dep_concepts1">
  <title>Basic Concepts</title>
- <para>Depreciation is the account method for expensing capital purchases over time.  There are two reasons that you may want to record depreciation; you are doing bookkeeping for your own personal finances and would like to keep track of your net worth, or you are doing bookkeeping for a small busines and need to produce a financial statement from which you will prepare your tax return.</para>
+ <para>Depreciation is the accounting method for expensing capital purchases over time.  There are two reasons that you may want to record depreciation; you are doing bookkeeping for your own personal finances and would like to keep track of your net worth, or you are doing bookkeeping for a small busines and need to produce a financial statement from which you will prepare your tax return.</para>
 
   <para>The method of recording depreciation is the same in either case. but the end goal is different.  This section will discuss the differences between the two. But first, some terminology.</para>
 
   <itemizedlist>
   <listitem>
-  <para><emphasis>Net book value</emphasis> - this is the difference between the original cost and the depreciation taken to date.</para>
+   <para><emphasis>Accumulated depreciation</emphasis> - the accumulated total of book depreciation taken over the life of the asset.  This is accumulated in the depreciation account in the asset section.</para>
   </listitem>
   <listitem>
-  <para><emphasis>Salvage value</emphasis> - this is the value that you estimate the asset can be sold for at the end of it's useful life (to you).</para>
+  <para><emphasis>Book depreciation</emphasis> - this is the amount of depreciation that you record in your financial statements per accounting period.</para>
   </listitem>
   <listitem>
-  <para><emphasis>Book depreciation</emphasis> - this is the amount of depreciation that you record in GnuCash.</para>
+  <para><emphasis>Fair market value</emphasis> - the amount for which an asset could be sold at a given time.</para>
   </listitem>
   <listitem>
-  <para><emphasis>Tax depreciation</emphasis> - this is the amount of depreciation that you take for income tax purposes.</para>
+  <para><emphasis>Net book value</emphasis> - this is the difference between the original cost and the depreciation taken to date.</para>
   </listitem>
   <listitem>
   <para><emphasis>Original cost</emphasis> - this is the amount that the asset cost you to purchase.  It includes any cost to get the asset into a condition in which you can use it.  For example - shipping, installation costs, special training.</para>
   </listitem>
   <listitem>
-  <para><emphasis>Fair market value</emphasis> - the amount for which an asset could be sold at a given time.</para>
+  <para><emphasis>Salvage value</emphasis> - this is the value that you estimate the asset can be sold for at the end of it's useful life (to you).</para>
+  </listitem>
+  <listitem>
+  <para><emphasis>Tax depreciation</emphasis> - this is the amount of depreciation that you take for income tax purposes.</para>
   </listitem>
   </itemizedlist>
 
@@ -54,9 +57,7 @@
  <sect2 id="dep_concepts_business2">
  <title>Business</title>
 
-  <para>In a manner similar to personal finance, businesses use depreciation to estimate net worth, this is called book depreciation.  However, the businesses also report depreciation for tax purposes, and as such it is highly regulated by tax laws.  Tax depreciation does not necessarily involve assets which lose resale value.  This means that a business may have discrepencies between book and tax depreciation.</para>
-
-  <para>One of the basic concepts in accounting is the matching of revenues and expenses.  When you purchase a capital asset (e.g. car, computer, equipment), you will use this asset to earn income for a number of years.  Instead of expensing the cost of the asset in the year it was purchased, you expense a portion of the cost each year in a manner that matches flow of revenue.  This process is called depreciation.</para>
+  <para>As opposed to personal finance where the goal is tracking personal worth, business is concerned with matching the expense of purchasing capital assets with the revenue generated by them.  This is done through book depreciation.  Businesses must also be concerned with local tax laws covering depreciation of assets.  This is known as tax depreciation.  The business is free to choose whatever scheme it wants to record book depreciation, but the scheme used for tax depreciation is fixed.  More often than not this results in differences between book and tax depreciation, but steps can be taken to reduce these differences.</para>
 
   <para>Now, what purchases should be capitalized?   If you expect something that you purchase to help you earn income for more than just the current year, then it should be capitalized.  This includes things like land, buildings, equipment, automobiles, and computers - as long as they are used for business purposes. It does not include items that would be considered inventory.  So if you made a purchase with the intent to resell the item, it should not be capitalized. </para>
 
@@ -282,10 +283,10 @@
 -Assets
    -ITEM1 
       -Cost                (Asset Cost account)
-      -Depreciation     (Accumulate Depreciation account)
+      -Depreciation     (Accumulated Depreciation account)
    -ITEM2
       -Cost                (Asset Cost account)
-      -Depreciation     (Accumulate Depreciation account)
+      -Depreciation     (Accumulated Depreciation account)
    -Bank
 -Expenses
    -Depreciation        (Depreciation Expense account)