Task 5: Record depreciation
Your company’s vehicles and equipment lose value each year. Part of the cost of vehicles and equipment can be allocated as an expense to your company each year that you benefit from their use. The allocation of the cost of a piece of equipment over its useful life is called depreciation.
There are several methods of recording depreciation. Consult your accountant to see which method is best for you.
If you depreciate your assets at the end of the financial year, make this step a part of your end-of-year routine. Consult your tax adviser or accountant for information on when to depreciate your assets.
Your AccountEdge software doesn’t calculate depreciation automatically, but you can record your depreciation figures with a journal entry.
Before you can record depreciation for an asset, you need to create an asset account and an expense account for each type of asset you depreciate. You only need to create these accounts once.
Create a new asset account for each type of asset you depreciate. Add the words ‘Accum Dep’ (for Accumulated Depreciation) at the end of each new account name. Give the new account a number that allows it to come directly after its corresponding asset account in the accounts list. In the following example, we have a header account, Office Equipment numbered 1‑3100, and a detail account Office Equipment Original Cost numbered 1‑3110. We have created a new asset account called Office Equipment Accum Dep numbered 1‑3120. Notice that the header account shows the current book value of the office equipment.
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Create a new expense account. You may want to call it Depreciation.
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Once you’ve determined your depreciation amounts, make journal entries to credit the new accumulated depreciation asset accounts (for example, Office Equipment Accum Dep) and debit the new depreciation expense account. The accumulated depreciation asset accounts will always have a negative balance to show a reduction in the value of the depreciable assets.
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