Computer Hardware Asset, Depreciation, and Expense Clarification

[John Ralls]

On Oct 18, 2011, at 8:05 PM, cgsmith wrote:

> We recently purchased a $1500 server.  I understand that it is an asset and
> will depreciate over 7 years.  However, most examples use credit cards which
> posts to the asset account.  I used my debit card (checking account) to
> purchase it.
> 
> So does the transaction post to the asset account just as I would a credit
> card? What about the invoice I received from newegg and pay via debit? Does
> that post to the expense account?
> 
> Can someone please clarify this. 
> 

Assuming that you are keeping the books for a business, you have exchanged one asset for another -- cash for a server. Create an asset account for the server (if you're going to have more than one depreciable asset, make a place holder account for depreciable assets and create a subaccount for each. Your purchase transaction will transfer the $1500 from your cash account to the server account -- that is, reduce the cash account and increase the server account.

Create a depreciation expense account.

Next, with your accountant's help, figure out what depreciation scheme you will use, and how often you will apply it (monthly, quarterly, and annually are most common). Work up a scheduled transaction that performs the depreciation calculation at the specified period, reducing the amount in the server account and increasing it in the depreciation expense account.

If you're going to be keeping the books for a business yourself, you really should take a basic book-keeping or accounting class at your local adult school or community college, or at least get the textbook for one and work through it. Pick one with the answers to problems in the back and do the chapter problems to make sure you're really absorbing the material.

Regards,
John Ralls