Two Income Statement patches: Assets & Value

[Mike or Penny Novack]

Frédéric

>Actually, it was not.  But I can certainly understand how it could seem
>that way to you.
>
>My question/need was actually technical: how much money went into asset
>account X last year?  [*]
>
>This need comes as a result of two things:
>
>* Under Canadian law, the half-year convention applies to everything.
>
>* Most (if not all) of my assets are actually small things, regrouped
>  into generic accounts.  I'll be damned to create a specific account
>  for each USB stick I've ever purchased; they all get dumped into
>  "Computer Equipment".
>
>Taken separately, these two issues wouldn't be a problem at all;
>applying the half-year rule to an account that only has one asset is
>easy as pie.  But when you've got years worth of stuff in there, you
>really need to know how much was bought/sold this year, ie. how much
>falls under the half-year rule.
>
>(I guess most businesses don't give a rat's ass about their USB sticks,
>or simply cheat and declare them as expenses.  Lucky them.  <g>)
>  
>
Again, I am not an accountant. But I think if you look at a standard 
accounting text you WILL see how to do this. I have to account for fixed 
assets and their depreciation and so I know how to do that (though at 
the moment, no fixed assets*). Depending on your tax laws, you might 
even have to have different depreciation schedules for fixed assets 
purchased in the same year and so more than one account under parent for 
"fixed assets purchased in year X" (or half year X -- here in the US 
don't need to get any finer than by year).

So no, you would (presumably) not have to have an account for each USB 
stick purchased in period . Just one account for fixed assets purchased 
in period X subject to the same depreciation schedule).

And BTW -- you are right that businesses might be "immediately expensing 
" small items. They simply need to make that clear in their accounting 
procedures.  Most  places tax laws are reasonable in that regard. A 
mechanical pencil (or USB stick) might in fact last several years but 
small items of that sort allowed to be treated as "consumables" and 
immediately "expensed" as "office supplies". Normally you go through the 
whole "fixed assets" rigamarole only when you are required to:
1) Your tax laws won't let you treat this item as a consumable.
2) The item has a substantial value and so not carrying it on the 
balance sheet distorts the financial position.
One or both of these and you do all that work of accounting for the 
fixed asset and its gradual conversion to an expense over time via 
depreciation.

OK -- I will try to describe what I would be doing. Our rule* is 
anything under $400 is expensed and depreciation over three years. The 
tree for fixed assets would look like ......

    Fixed assets
          .......
          ......    (dead accounts that are fully depreciated --- but 
they MIGHT be needed later -- sale of fully depreciated assset is a gain)
          Purchased in 2006
          Purchased in 2007
          Purchased in 2008
          Purchased in 2009

Now take that account Purchased in 2006. It would contain transactions 
for all items purchased in 2006. I would put those in a sub account and 
have a second subaccount for the depreciation of those items because 
easier math that way.
          Purchased in 2006
              Items
              Depreciation
During 2006 each fixed asset pruchase was a transaction to the Items 
account. After the end of 2006 no more transactions add any items so 
that total becomes the basis for fixed assets purchased in 2006. At the 
end of 2006, 2007, and 2008 a depreciation transaction for 1/3 of that 
balance is entered (and as an depreciation expense for that year, the 
other side of the transaction). So after the third year the balance will 
be zero, fully depreciated. If later something gets sold, will be 
"income" (gain from disposal of fully depreciated asset) or maybe an 
expense (had to pay somebody to cart it away).

Old fashioned pen and ink on paper would maybe just have the one ledger 
account (as the debit side total remains constant after end of year). 
But with GnuCash and similar software you are shown "balance" and that's 
why I would prefer the subaccount method.

Michael D Novack

* We are allowed to set a reasonable "de minimis" amount and also 
allowed to set an arbitrary depreciation time period. But we're a 
non-profit in the US and your rules could be quite different. As has 
come up on this list before, including the text of the statement of 
practices we use is part of our formal finacial report.

-- 
There is no possibility of social justice on a dead planet except the equality of the grave.