How to track depreciation?

[Mark Johnson]

David Harrison wrote:

>
>     1) Should I have been tracking depreciation on some regular basis over
>         the past years, to properly reflect its current value in
>     net-worth
>         statements? If so, how is that done?
>
>
>
> For an individual, I wouldn't normally track depreciation.  For a 
> business, set up two accounts.  The first is a sub account of the 
> asset account (call it accumulated depreciation), the second an 
> expense account (call it depreciation expense).  Each year, make an 
> entry to credit the accumulated depreciation account and debit the 
> depreciation expense account.  For tax purposes, the rate of 
> depreciation is set by tax law.  For financial statement purposes, you 
> can pick whatever rate you want - as long as it is consistant and 
> reasonable (for the most part, we just match for financial statements 
> what we do for tax purposes).
>
As an individual (not an accountant), I did choose to estimate 
depreciation on my car.  I did not want its purchase to show up as a 
one-time expense, as that would be very unrealistic for both expenses 
and assets.  So I used an asset account, and an expense account 
(auto:depreciation).  As it is a Pontiac, which I bought three years old 
for about half price, I estimated depreciation at 1.7% per month and 
have been entering monthly transactions ever since.  I think this better 
reflects the ongoing cost of running the car, even though depreciation 
is not a cash expense for the month.

Sadly, between moving and the car rusting faster than I had hoped, I now 
believe that it is significantly overvalued on my books.  So I when I 
sell it, I will be doing what Marc is proposing as well - a large charge 
(though smaller than Marc's) to depreciation in one month.

When you track it all, it's scary how much cars cost, isn't it?  I've 
come to believe that they are a bad deal.

Hope this helps,
Mark