Depreciation

[ghaverla@freenet.edmonton.ab.ca]

On Mon, 19 Mar 2001, Carol Champagne wrote:
> 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))

Okay, I gave this Account a name of "Owner Equity", and it
is of type "bank".  It's description is
 "bank" to get loans from
When I want to purchase something, I make a withdrawal
from the bank and transfer it to Capital:Additions.  In
the Description field I put what it is I am purchasing.
(Note, as far as the additions and accumulations accounts
goes, it looks to me like you actually need one of these
for each class of depreciation schedule you use.)

At the end of a calendar (or fiscal) year, I transfer
half of the balance of this additions account to my
accumulations account.  I then depreciate the partially
totalled accumulations file and transfer that amount
to my depreciation expense account.  I then go back to
my additions file and transfer the remaining balance
to the accumulations file.  As long as I continue to
increment the line number for these transactions on the
last day of the year, it looks like everything comes
out as it should (sort order is date first, then
number?).

I haven't adjusted any preferences from the Debian
defaults.  Maybe I am not supposed to make withdrawals
from the owner equity bank, but I understand what is
happening.

Does my explanation of what I did look like it agrees
with accepted practice?

> > 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.

I suspect the Canadian government doesn't allow us to have any
choice here.  I am going to assume the salvage value is always
zero.

> 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.

The workbook I am leaning on to set up GnuCash looks like
I should set up the Capital Gain as a special "distribution"
sub-account of Income, and likewise a loss would be a
special subaccount of a General Expense.

> > 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.

Okay, I'll try to get something back to you guys once I run
things past an accountant here.

Gord

Matter Realisations     http://www.materialisations.com/
Gordon Haverland, B.Sc. M.Eng. President
101  9504 182 St. NW    Edmonton, AB, CA  T5T 3A7
780/481-8019            ghaverla @ freenet.edmonton.ab.ca
780/993-1274 (cell)