assets, etc. more newbie questions

[Brian Craft]

On Fri, Mar 30, 2001 at 01:21:31PM -0600, Carol Champagne wrote:
>   When you sell the quilt for cash, you would transfer money from 
> (credit) a quilt income account to (debit) a cash account.  You would 
> also transfer money from (credit) the finished quilt asset account to 
> (debit) the cost of goods sold expense account.  Just a guess based on a 
> business example I see....

hmm.... ok. So there are two transactions. One tracks the incoming money.
The other tracks the cost of materials. "cost of goods sold" is an expense
account tracking your decreasing inventory. The difference between the
two transactions is whatever profit/loss you made on the finished product.

Though it looks like it'd be hard to track the profit except in the totals,
since there's no connection in the accounts between the two transactions
that define the profit for a single finished item.

Anyway, this sounds pretty complex for a hobby. ;)

What happens when something breaks? Like say you're in a car accident, and
you get some insurance. You can fix the car, or sell the car and keep the
money, or keep the car and keep the money.

If you keep the car and keep the money, your "car" asset has decreased in
value, and your cash asset has increased. Is the insurance payment a
transfer from "car" asset to "cash" asset? Or is there an "insurance"
income account that you transfer to cash, and a "stuff gets broke" expense
account that you transfer "car" assets to? And in the latter case, how do
you decide the amount to transfer from "car" to "stuff gets broke"? Do you
just make it the same as the insurance payment? This would be another case
of two related transactions that aren't actually connected in the books.

Is "stuff gets broke" the same thing as "depreciation"? Is depreciation an
expense account?

Depreciation seems pretty magical to me. It seems very, very hard to know
the "value" of something over time, and it seems like you might want different
numbers for different purposes. Like from a tax perspective, you probably
use the max percentage of depreciation allowed, to get the best write-off. But
if you really want to assess where you stand, financially, you probably want
a more conservative measure of depreciation. Like your "computer" assets may
drop very low from the tax perspective, and on paper it may look like you
need to buy more computers. But if they're actually in good condition, you
don't want to waste money on new equipment you don't need.
 
many thanks,
b.c.