RFC: Chapter 8 Tutorial/Guide

[Jon Lapham]

Matthew Vanecek wrote:
> 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.

So, do you think the following account structure is correct:

-Assets           + $300
   -Computer       + $1500   <- the "asset cost" account
   -Computer depr  - $1200   <- the "accumulated depreciation" account
-Expenses
   -Depreciation   + $1200   <- the "depreciation expense" account

in which Expenses:Depreciation is always the mirror of the accumulate 
depreciation account?

> 
> 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.

I like this.  Much simpler.  If I understand, this keeps capital 
improvements separate from you "asset cost" and "accumulated 
depreciation" accounts.  Much easier to follow.

> 
> 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.
> 

Right, but I think we should (in the users guide anyway) try to stick to 
one method.  This stuff is complicated enough for newbie 
pretend-accountant (ie: me) without mixing in the different ways of 
doing things...

Maybe after I get this chapter written using one method, I can add a 
final section which demonstrates other methods...

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  Jon Lapham  <lapham at extracta.com.br>          Rio de Janeiro, Brasil
  Work: Extracta Moléculas Naturais SA     http://www.extracta.com.br/
  Web: http://www.jandr.org/
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