Contra Asset Account

[John Ralls]

On Oct 9, 2014, at 10:12 AM, Derek Atkins <warlord at mit.edu> wrote:

> Hi,
> 
> Community <Community at MMHein.at> writes:
> 
>> Hi,
>> 
>> How would I create a contra asset account in Gnucash (2.6.4)?
>> 
>> This would be an asset account where all the accumulated depreciations
>> will get records instead of crediting these directly to the
>> corresponding asset accounts.
>> 
>> Major difference between a contra asset account and a regular one is
>> that the former is having a credit balance, whereas the latter one is
>> having a debit balance.
>> 
>> Would this be accomplished by assigning account type "liability" to
>> the contra asset account?
> 
> No, I think you just create an account of type asset that will generally
> be negative.
> 
>> Example journal entries:
>> 
>> (01) Dr. Buy equipment (A) current assets 100,000.00
>> 	Cr. Pay equipment (A) cash 100,000.00
>> 
>> (02) Dr. Equipment Depreciation (E) depreciation expenses 10,000.00
>> 	Cr. Depreciate equipement (XA) accumulated depreciations
>> 10,000.00
>> 
>> On the balance sheet the accumulated depreciations would then get
>> subtracted from the assets.
> 
> The balance sheet puts liabilities "elsewhere", which is why you want
> the account type to be Asset.

The cleanest way to do it is to create a “depreciation” sub-account for each depreciable asset account. You record the purchase in the main asset account and record the depreciation in the sub-account, balanced by a Depreciation expense account. Note that purchase of a depreciable asset is *not an expense*, it’s a transfer between asset accounts. For example, suppose you buy a truck:
  Assets:Depreciable:Vehicles:Truck               35,000.00
  Assets:Checking                                             35,000.00

Then every period (annual, quarterly, monthly, depending on your accountant’s preference), you post depreciation. Let’s assume monthly, 5-year, straight-line with a 5,000.00 salvage value, which is 500.00/month ( (35,000 - 5000)/60 ):
  Expenses:Deductible:Depreciation                   500.00
  Assets:Depreciable:Vehicles:Truck:Depreciation                 500.00

You don’t have to have a separate depreciation account; you can just post the depreciation amounts directly to the asset account. If you have a separate account, the balance will show the total depreciation taken on the asset; if you post directly the balance will show the current book value of the asset. On the other hand, if you separate them then the Balance Sheet will show the current book value in the Asset account and, if you have the depth set high enough, the total depreciation in the depreciation sub-account. You could go one step further and make the asset account itself a placeholder with a buy/sell and a depreciation sub-accounts. That way the Balance sheet will show the net in the asset account with the purchase price in the buy/sell sub-account and the total depreciation in the depreciation sub-account.

Regards,
John Ralls