Depreciation

[Carol Champagne]

ghaverla@freenet.edmonton.ab.ca wrote:


>> 
>> I think the 4 types of GnuCash accounts you need are:
>> Cash or Bank (for the money to buy the asset)
 
> I would label this "Owner Equity"?  And for the near
> term it will always be negative?

If you are using an equity type account, then you debit the asset
and credit the equity account.  Equity accounts carry a credit
balance.  Whether it shows up as positive or negative in GnuCash
depends on how you have set your preferences (Settings|Preferences
General Tab (Reversed-balance accounts))

 
>> Asset (for the asset you are purchasing)
>> Asset (for the accumulated depreciation)
>> Expense (for the yearly depreciation expense)
> 
> 
> And these are the 3 accounts mentioned in the GnuCash
> "manual"?
The manual mentions an asset cost, accum. dep. and dep. expense
account---I just added suggested GnuCash types to these.  When
you set up the accounts in GnuCash, you'll have to specify a type.

 

>> Dr. Asset (purchase price)  $10000
> 
> 
> Dr == ?  Debit?
Yes,sorry--I've seen it abbreviated that way.  Not sure why Dr. stands 
for Debit, though.


>> called its salvage value (amount it's worth at the end of its life).
>> 
>> In the example above, I buy an asset for $10000 and estimate its
>> salvage value at $1000.  The asset has a 5-year life, so the 
> 
> 
> Should (how?) a person track this salvage value year to
> year?
Not sure on this one...
It looks like the salvage value is just used to initially calculate
depreciation.  I don't see anything about tracking salvage value 
year-to-year.  According to my text, salvage value is "an estimate
of the asset's value at the end of its useful life. The value may
be based on the asset's worth as scrap or salvage or on its expected
trade-in value. Like useful life, salvage value is an estimate."  The
only thing that appears to be tracked year-to-year is the depreciation.

 
>> straight-line dep. is (10000 - 1000)/5 = 1800. At the end of the
> 
> 
> I live in Canada.  Nothing is that easy.  :-)  We can only
> depreciate half of what we should in the first year, and
> thereafter it is a geometric depreciation.  Rate depends
> on asset "class".
 Have fun. :-)   


> 
>> 3. Sale of asset at a gain
>> If you sell the asset at a gain, you need an additional account for the 
>> gain:
> 
> 
> This loss or gain goes in yet another account?  So, we
> actually need 5 (or 6?) accounts to track depreciation?
> Oh boy!  Lots of things to remember.

These accounts are only needed when you sell or dispose of the asset---
not to record yearly depreciation.  The text examples put the gain in an 
income account and the loss in an expense account.  The text
applies to corporations, though, so this may be overkill if you are a
small business.  I guess it depends on the level of detail you need to
track for taxes, reporting, etc.

> I might actually be able to provide a template of all
> this stuff after I am done.  Would that be of use to
> the project?
I'm sure it would be, to see how these accounts are being used.