Re: Example of depreciation transactions?

["Chris Travers" <..hidden..>]

Hi Ed.

It has been suggested to me by another core member that there is a
better way to do this.

Capital assets go into specific accounts at time of purchase,  They
stay there until they are disposed of.

For each type of capital asset, you also create a contra asset
account.  THis account is used to track accumulated depreciation of
the purchases.

You also need an  expense acccount to handle actual depreciation expenses.

And ideally you should have income and expense accounts to track cost
or revenue from disposal.

At purchase net effect is:
debit capital asset, credit cash

At depreciation:
debit depreciation expense account, credit contra depreciation asset account.

at disposal:
credit capital asset account for original purchase,
adjust cash account for net gain/loss involving disposal cost,
Add transaction contra asset reversing total depreciation
Add net depreciation remaining to expense account
Add any revenue gained to relevant income account.
Add any disposal costs to relevant expense account

Thinking that at some point in the future we need to add this
functionality directly into the software through an asset accounting
interface.

Best Wishes,
Chris Travers


On 11/12/06, Chris Travers <..hidden..> wrote:
> On 11/12/06, Ed W <..hidden..> wrote:
> > Hi
> >
> > > So the depreciation shows up on the balance sheet?  Under which
> > > section?  Is your depreciation account really an expense account (as
> > > it should be)?
> > >
> >
> > Depreciation is showing up under the Assets section...
> >
> > It's *not* an expense account, I am using the default "general" COA from
> > SL.  In this it's set as a "contra" account and nothing else.  The
> > manual makes vague references to a contra account being useful for
> > tracking net accumulated depreciation against an book asset account, but
> > doesn't give an example of the transactions.
>
> That would be it.  Depreciation should be an expense.  I guess I will
> make sure this gets changed for 1.2.
>
> Contra accounts are useful for things like allowances.  For example,
> allowance for doubtful accounts, allowance for returns, and things
> like that.  Depreciation is an expense and should be treated as such
> (i.e. it is analogous to purchases of non-capital goods but just
> amortized over time).
>
> Best WIshes,
> Chris Travers