Depreciation

Your company’s vehicles and equipment deteriorate and lose value each year. Part of the cost of vehicles and equipment can be allocated as an expense to your company each year you benefit from its use. The allocation of the cost of a piece of equipment over its useful life is called depreciation. There are several methods of depreciation. Consult your accountant to see whether you should be depreciating vehicles and equipment and, if you should, which method is best for you. AccountEdge does not calculate depreciation automatically, but you can record your depreciation figures in two steps.

CREATE NEW ACCOUNTS FOR DEPRECIATION

Create a new account called Accumulated Depreciation for each of the accounts you depreciate. Give the new accounts numbers that directly follow their corresponding asset accounts. Also create a new expense account called Depreciation Expense.

For example:

Assets:
Company van
Company van Accumulated Depreciation (NEW ACCOUNT)
Computers
Computers Accumulated Depreciation (NEW ACCOUNT)

Expenses:
Depreciation Expense (NEW ACCOUNT)

RECORD DEPRECIATION FIGURES

Once you have determined your depreciation amounts, make General Journal entries to credit the Accumulated Depreciation asset accounts and debit the Depreciation Expense account. The asset accounts will always have a contra (negative) balance to show a reduction in the value of the depreciation asset.