How to track depreciation?

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How to track depreciation?

marc-19
Hello -

I own a car, which when I purchased it, I transferred the monies used to
pay for it from my checking account to an asset account "car". Several
years have past, and now it is time to sell the car. The amount I will
receive for the car will be significantly less than what I paid. My
questions are:

1) Should I have been tracking depreciation on some regular basis over
    the past years, to properly reflect its current value in net-worth
    statements? If so, how is that done?

2) Now that the car will be sold, how should I account for the money that
    I receive (I presume it isn't income), and how do I account for the
    difference of sold-value versus asset value on the books?

I presume that the above questions are general, in that they are true for
all assets that are tracked and/or later sold (at profit or loss).

Thanks in advance - Marc
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Re: How to track depreciation?

Derek Atkins
If you're not a business then technically you can't depreciate the
car.  When you sell the car, you create a split transaction.  In
the asset you reduce by the full (original) value of the car, then
the sale value goes into Income:Auto Sale, and then rest goes into
Equity:Capital Depreciation.  I don't think you can count is as a
capital loss.

Maybe an accountant will chime in?

-derek

[hidden email] writes:

> Hello -
>
> I own a car, which when I purchased it, I transferred the monies used to
> pay for it from my checking account to an asset account "car". Several
> years have past, and now it is time to sell the car. The amount I will
> receive for the car will be significantly less than what I paid. My
> questions are:
>
> 1) Should I have been tracking depreciation on some regular basis over
>    the past years, to properly reflect its current value in net-worth
>    statements? If so, how is that done?
>
> 2) Now that the car will be sold, how should I account for the money that
>    I receive (I presume it isn't income), and how do I account for the
>    difference of sold-value versus asset value on the books?
>
> I presume that the above questions are general, in that they are true for
> all assets that are tracked and/or later sold (at profit or loss).

--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       [hidden email]                        PGP key available
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Re: How to track depreciation?

marc-19
Hello Derek -

Thanks for the follow up. What you say makes sense to me, with one
curiosity. The "Income:Auto Sale" bothers me, to some extent, in that I
don't personally believe that any "Income" occured. It is really an asset
transfer from a physical asset to a cash asset, isn't it? So to that end,
the split would be between Equity and Assets, correct?

Thanks in advance - Marc

On Fri, 30 Sep 2005, Derek Atkins wrote:

> If you're not a business then technically you can't depreciate the
> car.  When you sell the car, you create a split transaction.  In
> the asset you reduce by the full (original) value of the car, then
> the sale value goes into Income:Auto Sale, and then rest goes into
> Equity:Capital Depreciation.  I don't think you can count is as a
> capital loss.
>
> Maybe an accountant will chime in?
>
> -derek
>
> [hidden email] writes:
>
>> Hello -
>>
>> I own a car, which when I purchased it, I transferred the monies used to
>> pay for it from my checking account to an asset account "car". Several
>> years have past, and now it is time to sell the car. The amount I will
>> receive for the car will be significantly less than what I paid. My
>> questions are:
>>
>> 1) Should I have been tracking depreciation on some regular basis over
>>    the past years, to properly reflect its current value in net-worth
>>    statements? If so, how is that done?
>>
>> 2) Now that the car will be sold, how should I account for the money that
>>    I receive (I presume it isn't income), and how do I account for the
>>    difference of sold-value versus asset value on the books?
>>
>> I presume that the above questions are general, in that they are true for
>> all assets that are tracked and/or later sold (at profit or loss).
>
> --
>       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
>       Member, MIT Student Information Processing Board  (SIPB)
>       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
>       [hidden email]                        PGP key available
>
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Re: How to track depreciation?

Dale Alspach
In reply to this post by Derek Atkins
>If you're not a business then technically you can't depreciate the
>car.  When you sell the car, you create a split transaction.  In
>the asset you reduce by the full (original) value of the car, then
>the sale value goes into Income:Auto Sale, and then rest goes into
>Equity:Capital Depreciation.  I don't think you can count is as a
>capital loss.
>
>Maybe an accountant will chime in?
>
>-derek

I think you mean that he cannot use depreciation as a deduction on his
taxes (in the U.S.A.). Sale of an asset only generates income if there is a
capital gain. If the car were an investment, e.g., a vintage Corvette, a
loss would probably be deductible. There are some fine points here so
consulting an accountant/tax advisor (I am neither) would be advisable.

Really the asset should be depreciated each year and the depreciation
treated as an expense. For personal accounting this is rarely done.
If you expense the entire depreciation in the year of the sale, that will give a
misleading item in your reports. Dumping the depreciation into equity as
Derek suggested is one possibility. Another possibility is to expense it on
the last day of the year and keep that day out of your reports.
The sale of the car is an asset conversion of the salvage value.

Dale Alspach
not income.
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Re: How to track depreciation?

David Harrison-2
In reply to this post by marc-19
Here is a general answer that will do for any capital asset.  Please note that my answer is based on Canadian GAAP (Generally Accepted Accounting Principles), so the rules in your country may vary.  Also, tax laws in each country are different.  Here is a link to the concept guide that goes into more detail.

On 9/13/05, [hidden email] <[hidden email]> wrote:
Hello -

I own a car, which when I purchased it, I transferred the monies used to
pay for it from my checking account to an asset account "car". Several
years have past, and now it is time to sell the car. The amount I will
receive for the car will be significantly less than what I paid. My
questions are:

1) Should I have been tracking depreciation on some regular basis over
    the past years, to properly reflect its current value in net-worth
    statements? If so, how is that done?


For an individual, I wouldn't normally track depreciation.  For a business, set up two accounts.  The first is a sub account of the asset account (call it accumulated depreciation), the second an expense account (call it depreciation expense).  Each year, make an entry to credit the accumulated depreciation account and debit the depreciation expense account.  For tax purposes, the rate of depreciation is set by tax law.  For financial statement purposes, you can pick whatever rate you want - as long as it is consistant and reasonable (for the most part, we just match for financial statements what we do for tax purposes).


2) Now that the car will be sold, how should I account for the money that
    I receive (I presume it isn't income), and how do I account for the
    difference of sold-value versus asset value on the books?


Basically, you want to zero out the asset account, zero out the accumulated depreciation account, and plug the difference to an account called "Gain (Loss) on disposal of assets".   The entry would look something like this:

Assets: Bank                                       $ x,xxx.xx
Assets: Accumulated depreciation         $ x,xxx.xx
Expense: Gain (Loss) on disposal          $ x,xxx.xx (or could be a credit)
   Asset: Auto                                                           $ x, xxx.xx

Note: disposal of assets is a completely different story for tax purposes.  Please consult your tax professional for advise.

I presume that the above questions are general, in that they are true for
all assets that are tracked and/or later sold (at profit or loss).

You are correct.
 

Thanks in advance - Marc
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Re: How to track depreciation?

John R. Sowden
On Fri September 30 2005 08:21, David Harrison wrote:

> Here is a general answer that will do for any capital asset. Please note
> that my answer is based on Canadian GAAP (Generally Accepted Accounting
> Principles), so the rules in your country may vary. Also, tax laws in each
> country are different. Here is a
> link<http://www.gnucash.org/docs/v1.8/C/gnucash-guide/chapter11.html>to
> the concept guide that goes into more detail.
>
> On 9/13/05, [hidden email] <[hidden email]> wrote:
> > Hello -
> >
> > I own a car, which when I purchased it, I transferred the monies used to
> > pay for it from my checking account to an asset account "car". Several
> > years have past, and now it is time to sell the car. The amount I will
> > receive for the car will be significantly less than what I paid. My
> > questions are:
> >
> > 1) Should I have been tracking depreciation on some regular basis over
> > the past years, to properly reflect its current value in net-worth
> > statements? If so, how is that done?
>
> For an individual, I wouldn't normally track depreciation. For a business,
> set up two accounts. The first is a sub account of the asset account (call
> it accumulated depreciation), the second an expense account (call it
> depreciation expense). Each year, make an entry to credit the accumulated
> depreciation account and debit the depreciation expense account. For tax
> purposes, the rate of depreciation is set by tax law. For financial
> statement purposes, you can pick whatever rate you want - as long as it is
> consistant and reasonable (for the most part, we just match for financial
> statements what we do for tax purposes).
>
>
> 2) Now that the car will be sold, how should I account for the money that
>
> > I receive (I presume it isn't income), and how do I account for the
> > difference of sold-value versus asset value on the books?
>
> Basically, you want to zero out the asset account, zero out the accumulated
> depreciation account, and plug the difference to an account called "Gain
> (Loss) on disposal of assets". The entry would look something like this:
>
> Assets: Bank $ x,xxx.xx
> Assets: Accumulated depreciation $ x,xxx.xx
> Expense: Gain (Loss) on disposal $ x,xxx.xx (or could be a credit)
> Asset: Auto $ x,xxx.xx
>
> Note: disposal of assets is a completely different story for tax purposes.
> Please consult your tax professional for advise.
>
> I presume that the above questions are general, in that they are true for
>
> > all assets that are tracked and/or later sold (at profit or loss).
>
> You are correct.
>
> Thanks in advance - Marc
>
> > _______________________________________________
> > gnucash-user mailing list
> > [hidden email]
> > https://lists.gnucash.org/mailman/listinfo/gnucash-user
>
> --
> David Harrison, BAccS, CGA
A few thought from a businessman/not accountant
I have as many depreciation expense accounts as I have fixed asset accounts,
approx 8.  This way I can see the amount of deprec per type on a financial
statement.  I post my depreciation quarterly, because I create quarterly
financial statements.  Finally, I do not "zero out" the asset account until
the asset is sold, because even though that piece of equipment is worth zero
on the books, it is still an asset to the business and probably generating
revenue.  The contra account "Widgets, Accumulated Depreciation" will just
have an equal but negative value with respect to the asset, so it calculates
to zero when your balance sheet sums the fixed assets.

--
John R. Sowden
AMERICAN SENTRY SYSTEMS, INC.
Residential & Commercial Alarm Service
UL Listed Central Station
Serving the San Francisco Bay Area Since 1967
[hidden email]
www.americansentry.net
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Re: How to track depreciation?

Mark Johnson-2
In reply to this post by David Harrison-2
David Harrison wrote:

>
>     1) Should I have been tracking depreciation on some regular basis over
>         the past years, to properly reflect its current value in
>     net-worth
>         statements? If so, how is that done?
>
>
>
> For an individual, I wouldn't normally track depreciation.  For a
> business, set up two accounts.  The first is a sub account of the
> asset account (call it accumulated depreciation), the second an
> expense account (call it depreciation expense).  Each year, make an
> entry to credit the accumulated depreciation account and debit the
> depreciation expense account.  For tax purposes, the rate of
> depreciation is set by tax law.  For financial statement purposes, you
> can pick whatever rate you want - as long as it is consistant and
> reasonable (for the most part, we just match for financial statements
> what we do for tax purposes).
>
As an individual (not an accountant), I did choose to estimate
depreciation on my car.  I did not want its purchase to show up as a
one-time expense, as that would be very unrealistic for both expenses
and assets.  So I used an asset account, and an expense account
(auto:depreciation).  As it is a Pontiac, which I bought three years old
for about half price, I estimated depreciation at 1.7% per month and
have been entering monthly transactions ever since.  I think this better
reflects the ongoing cost of running the car, even though depreciation
is not a cash expense for the month.

Sadly, between moving and the car rusting faster than I had hoped, I now
believe that it is significantly overvalued on my books.  So I when I
sell it, I will be doing what Marc is proposing as well - a large charge
(though smaller than Marc's) to depreciation in one month.

When you track it all, it's scary how much cars cost, isn't it?  I've
come to believe that they are a bad deal.

Hope this helps,
Mark
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Re: How to track depreciation?

David Harrison-2
On 9/30/05, Mark Johnson <[hidden email]> wrote:
David Harrison wrote:

>
>     1) Should I have been tracking depreciation on some regular basis over
>         the past years, to properly reflect its current value in
>     net-worth
>         statements? If so, how is that done?
>
>
>
> For an individual, I wouldn't normally track depreciation.  For a
> business, set up two accounts.  The first is a sub account of the
> asset account (call it accumulated depreciation), the second an
> expense account (call it depreciation expense).  Each year, make an
> entry to credit the accumulated depreciation account and debit the
> depreciation expense account.  For tax purposes, the rate of
> depreciation is set by tax law.  For financial statement purposes, you
> can pick whatever rate you want - as long as it is consistant and
> reasonable (for the most part, we just match for financial statements
> what we do for tax purposes).
>
As an individual (not an accountant), I did choose to estimate
depreciation on my car.  I did not want its purchase to show up as a
one-time expense, as that would be very unrealistic for both expenses
and assets.  So I used an asset account, and an expense account
(auto:depreciation).  As it is a Pontiac, which I bought three years old
for about half price, I estimated depreciation at 1.7% per month and
have been entering monthly transactions ever since.  I think this better
reflects the ongoing cost of running the car, even though depreciation
is not a cash expense for the month.

Sadly, between moving and the car rusting faster than I had hoped, I now
believe that it is significantly overvalued on my books.  So I when I
sell it, I will be doing what Marc is proposing as well - a large charge
(though smaller than Marc's) to depreciation in one month.

When you track it all, it's scary how much cars cost, isn't it?  I've
come to believe that they are a bad deal.

I hope not to confuse the issue more, but true depreciation (more correctly called amortization now) isn't meant to write the asset down to reflect it's value.  It is, rather, the matching of expenses to revenue. To get even deeper into it, you have to ask the question, what is the difference between expenses and capital assets?  Expenses are items purchased in order to generate income in the current year.  Assets are items purchased to generate income in the current year and in future years.  So in order to properly reflect the expenses associated with the revenue generated in any given year, you amortize the capital assets in a manner that matches the revenue they generate.

Now, I know you're going to argue that my explanation is from a business perspective, but you are keeping books for your own personal non-business activities, and you're right.  From a personal perspective, what I want to know in regards to my assets is what are they worth.  What I would do in that case is record depreciation in a manner that reflects the value of the asset at a particular time.  For example, for my car I might look up the blue book value of it at the end of the year and record depreciation to make the net book value (cost less accumulated depreciation) equal the blue book value.

This method works fine for assets that depreciate, like cars and computers.  But, what about my house, or another asset that goes up in value?  Would you then record "negative depreciation"?  If you are recording depreciation for your car, then I would argue that you should.

I trust I haven't confused the issue more ;)

--
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Re: How to track depreciation?

Mark Johnson-2
David Harrison wrote:

>
> I hope not to confuse the issue more, but true depreciation (more
> correctly called amortization now) isn't meant to write the asset down
> to reflect it's value.  It is, rather, the matching of expenses to
> revenue. To get even deeper into it, you have to ask the question,
> what is the difference between expenses and capital assets?  Expenses
> are items purchased in order to generate income in the current year.  
> Assets are items purchased to generate income in the current year and
> in future years.  So in order to properly reflect the expenses
> associated with the revenue generated in any given year, you amortize
> the capital assets in a manner that matches the revenue they generate.
>
> Now, I know you're going to argue that my explanation is from a
> business perspective, but you are keeping books for your own personal
> non-business activities, and you're right.  From a personal
> perspective, what I want to know in regards to my assets is what are
> they worth.  What I would do in that case is record depreciation in a
> manner that reflects the value of the asset at a particular time.  For
> example, for my car I might look up the blue book value of it at the
> end of the year and record depreciation to make the net book value
> (cost less accumulated depreciation) equal the blue book value.
>
> This method works fine for assets that depreciate, like cars and
> computers.  But, what about my house, or another asset that goes up in
> value?  Would you then record "negative depreciation"?  If you are
> recording depreciation for your car, then I would argue that you should.
>
> I trust I haven't confused the issue more ;)

I don't think you've confused it.  In fact, thanks for the information.

>
> --
> David Harrison, BAccS, CGA

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Re: How to track depreciation?

Andrew Sackville-West
In reply to this post by David Harrison-2


David Harrison wrote:

> On 9/30/05, *Mark Johnson* <[hidden email] <mailto:[hidden email]>> wrote:
>
>    <<<snippity doo-dah>>>
>
> This method works fine for assets that depreciate, like cars and
> computers.  But, what about my house, or another asset that goes up in
> value?  Would you then record "negative depreciation"?  If you are
> recording depreciation for your car, then I would argue that you should.
>
> I trust I haven't confused the issue more ;)

Houses are interesting as they generally appreciate, plus you can
increase your basis in the house by making improvements which hopefully
increase the value more than what you spend... I don't personally do
this as I'm too lazy, but a friend keeps an asset account for the house
which carries the purchase value of the house, as well as the associated
mortgage accounts and interest expense accounts etc. Anytime he spends
any money that adds to the house in any way: repairs, new roof,
whatever, he records that not as an expense, but as an addition to that
asset. Then when he sells the house, his basis reflects any money he's
invested in the house. Makes his gains smaller for tax purposes (US),
but also allows him to really get a handle on what he's doing with the
house.  What this doesn't do is make any record of increased market
value. I think that gets too complicated as you'd have to call it income
and that could get really screwy, although you could call it unrealized
gains maybe? IANAA.

my .02

A

>
> --
> David Harrison, BAccS, CGA
>
>
> ------------------------------------------------------------------------
>
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Re: How to track depreciation?

David Harrison-2
On 10/4/05, Andrew Sackville-West <[hidden email]> wrote:


David Harrison wrote:

> On 9/30/05, *Mark Johnson* <[hidden email] <mailto:[hidden email]>> wrote:
>
>    <<<snippity doo-dah>>>
>
> This method works fine for assets that depreciate, like cars and
> computers.  But, what about my house, or another asset that goes up in
> value?  Would you then record "negative depreciation"?  If you are
> recording depreciation for your car, then I would argue that you should.
>
> I trust I haven't confused the issue more ;)

Houses are interesting as they generally appreciate, plus you can
increase your basis in the house by making improvements which hopefully
increase the value more than what you spend... I don't personally do
this as I'm too lazy, but a friend keeps an asset account for the house
which carries the purchase value of the house, as well as the associated
mortgage accounts and interest expense accounts etc. Anytime he spends
any money that adds to the house in any way: repairs, new roof,
whatever, he records that not as an expense, but as an addition to that
asset.

This actually holds true for any improvement to an asset.  The "proper" treatment is to add it to the cost base.  Note, this does not apply to repairs, only improvements.

Then when he sells the house, his basis reflects any money he's
invested in the house. Makes his gains smaller for tax purposes (US),
but also allows him to really get a handle on what he's doing with the
house.  What this doesn't do is make any record of increased market
value. I think that gets too complicated as you'd have to call it income
and that could get really screwy, although you could call it unrealized
gains maybe? IANAA.

Yes, unrealized gains would be appropriate.  The same as if you had gains in a stock.

my .02

A




--
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Re: How to track depreciation?

Derek Atkins
In reply to this post by marc-19
Sorry, there /could/ be income involved..  I am not an accountant,
so I /do/ sometimes get this wrong.  ;)   You are correct that
there probably is not any Income, it's just an asset transfer.

-derek

[hidden email] writes:

> Hello Derek -
>
> Thanks for the follow up. What you say makes sense to me, with one
> curiosity. The "Income:Auto Sale" bothers me, to some extent, in that I
> don't personally believe that any "Income" occured. It is really an asset
> transfer from a physical asset to a cash asset, isn't it? So to that end,
> the split would be between Equity and Assets, correct?
>
> Thanks in advance - Marc
>
> On Fri, 30 Sep 2005, Derek Atkins wrote:
>
>> If you're not a business then technically you can't depreciate the
>> car.  When you sell the car, you create a split transaction.  In
>> the asset you reduce by the full (original) value of the car, then
>> the sale value goes into Income:Auto Sale, and then rest goes into
>> Equity:Capital Depreciation.  I don't think you can count is as a
>> capital loss.
>>
>> Maybe an accountant will chime in?
>>
>> -derek
>>
>> [hidden email] writes:
>>
>>> Hello -
>>>
>>> I own a car, which when I purchased it, I transferred the monies used to
>>> pay for it from my checking account to an asset account "car". Several
>>> years have past, and now it is time to sell the car. The amount I will
>>> receive for the car will be significantly less than what I paid. My
>>> questions are:
>>>
>>> 1) Should I have been tracking depreciation on some regular basis over
>>>    the past years, to properly reflect its current value in net-worth
>>>    statements? If so, how is that done?
>>>
>>> 2) Now that the car will be sold, how should I account for the money that
>>>    I receive (I presume it isn't income), and how do I account for the
>>>    difference of sold-value versus asset value on the books?
>>>
>>> I presume that the above questions are general, in that they are true for
>>> all assets that are tracked and/or later sold (at profit or loss).
>>
>> --
>>       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
>>       Member, MIT Student Information Processing Board  (SIPB)
>>       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
>>       [hidden email]                        PGP key available
>>
> _______________________________________________
> gnucash-user mailing list
> [hidden email]
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>
>

--
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
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Re: How to track depreciation?

John R. Sowden
On Mon October 24 2005 06:01, Derek Atkins wrote:

> Sorry, there /could/ be income involved..  I am not an accountant,
> so I /do/ sometimes get this wrong.  ;)   You are correct that
> there probably is not any Income, it's just an asset transfer.
>
> -derek
>
> [hidden email] writes:
> > Hello Derek -
> >
> > Thanks for the follow up. What you say makes sense to me, with one
> > curiosity. The "Income:Auto Sale" bothers me, to some extent, in that I
> > don't personally believe that any "Income" occured. It is really an asset
> > transfer from a physical asset to a cash asset, isn't it? So to that end,
> > the split would be between Equity and Assets, correct?
> >
> > Thanks in advance - Marc
> >
> > On Fri, 30 Sep 2005, Derek Atkins wrote:
> >> If you're not a business then technically you can't depreciate the
> >> car.  When you sell the car, you create a split transaction.  In
> >> the asset you reduce by the full (original) value of the car, then
> >> the sale value goes into Income:Auto Sale, and then rest goes into
> >> Equity:Capital Depreciation.  I don't think you can count is as a
> >> capital loss.
> >>
> >> Maybe an accountant will chime in?
> >>
> >> -derek
> >>
> >> [hidden email] writes:
> >>> Hello -
> >>>
> >>> I own a car, which when I purchased it, I transferred the monies used
> >>> to pay for it from my checking account to an asset account "car".
> >>> Several years have past, and now it is time to sell the car. The amount
> >>> I will receive for the car will be significantly less than what I paid.
> >>> My questions are:
> >>>
> >>> 1) Should I have been tracking depreciation on some regular basis over
> >>>    the past years, to properly reflect its current value in net-worth
> >>>    statements? If so, how is that done?
> >>>
> >>> 2) Now that the car will be sold, how should I account for the money
> >>> that I receive (I presume it isn't income), and how do I account for
> >>> the difference of sold-value versus asset value on the books?
> >>>
> >>> I presume that the above questions are general, in that they are true
> >>> for all assets that are tracked and/or later sold (at profit or loss).
> >>
> >> --
> >>       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
> >>       Member, MIT Student Information Processing Board  (SIPB)
> >>       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
> >>       [hidden email]                        PGP key available
> >
> > _______________________________________________
> > gnucash-user mailing list
> > [hidden email]
> > https://lists.gnucash.org/mailman/listinfo/gnucash-user

If you had a 10,000 vehicle that you depreciated over 5 years at 1,800 per
yeat (150/mo), leaving 1000 for salvage value, the accumulated depreciation
account would have 9,000 in it, leaving a book value of !,0000.

If you were to look in the clasified for a year 2000 similiar vehicle, it
might have a market value of 4,000, so if you were to sell yours for 4,000.
you would have the following ledger entries:

Account             DR         CR
Cash                4,000.                (this is the cash coming in the
                                                   door)
Other Income                 3,000.   (not from operations)

Accum Deprec   9,000.               (this zeros out the accum deprec)
Asset Vehicle               10,000.  (this gets it off your books)

--
John R. Sowden
AMERICAN SENTRY SYSTEMS, INC.
Residential & Commercial Alarm Service
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Serving the San Francisco Bay Area Since 1967
[hidden email]
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Re: How to track depreciation?

Doug Laidlaw
It may depend on the accounting conventions used in your country, but the
method used in Australia is as follows:

Depreciation is usually calculated at the rate allowed by our Taxation office,
but if a realistic rate is different, you could probably modify the
procedure.

When preparing end-of-year reports, we do a journal, crediting "Provision for
Depreciation" and debiting "Depreciation Expense"  There can be one Provision
account for each asset if you prefer.

The balance of "Depreciation Expense" is transferred to Profit and Loss.  The
Provision is shown in the Balance Sheet against the value of the asset, but
kept distinct, thus:

Plant and Equipment: $100,000.00
        Less Provision for Depreciation     5,000.00
                                                        ___________ 95,000.00

If an asset is sold, the actual sale price is compared with the book figure,
and the difference is either income or a further deduction.

In the books for the following financial period, the balance of the Provision
account is brought down.

HTH,

Doug.


On Tue, 25 Oct 2005 8:56 am, John R. Sowden wrote:

> On Mon October 24 2005 06:01, Derek Atkins wrote:
> > Sorry, there /could/ be income involved..  I am not an accountant,
> > so I /do/ sometimes get this wrong.  ;)   You are correct that
> > there probably is not any Income, it's just an asset transfer.
> >
> > -derek
> >
> > [hidden email] writes:
> > > Hello Derek -
> > >
> > > Thanks for the follow up. What you say makes sense to me, with one
> > > curiosity. The "Income:Auto Sale" bothers me, to some extent, in that I
> > > don't personally believe that any "Income" occured. It is really an
> > > asset transfer from a physical asset to a cash asset, isn't it? So to
> > > that end, the split would be between Equity and Assets, correct?
> > >
> > > Thanks in advance - Marc
> > >
> > > On Fri, 30 Sep 2005, Derek Atkins wrote:
> > >> If you're not a business then technically you can't depreciate the
> > >> car.  When you sell the car, you create a split transaction.  In
> > >> the asset you reduce by the full (original) value of the car, then
> > >> the sale value goes into Income:Auto Sale, and then rest goes into
> > >> Equity:Capital Depreciation.  I don't think you can count is as a
> > >> capital loss.
> > >>
> > >> Maybe an accountant will chime in?
> > >>
> > >> -derek
> > >>
> > >> [hidden email] writes:
> > >>> Hello -
> > >>>
> > >>> I own a car, which when I purchased it, I transferred the monies used
> > >>> to pay for it from my checking account to an asset account "car".
> > >>> Several years have past, and now it is time to sell the car. The
> > >>> amount I will receive for the car will be significantly less than
> > >>> what I paid. My questions are:
> > >>>
> > >>> 1) Should I have been tracking depreciation on some regular basis
> > >>> over the past years, to properly reflect its current value in
> > >>> net-worth statements? If so, how is that done?
> > >>>
> > >>> 2) Now that the car will be sold, how should I account for the money
> > >>> that I receive (I presume it isn't income), and how do I account for
> > >>> the difference of sold-value versus asset value on the books?
> > >>>
> > >>> I presume that the above questions are general, in that they are true
> > >>> for all assets that are tracked and/or later sold (at profit or
> > >>> loss).
> > >>
> > >> --
> > >>       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
> > >>       Member, MIT Student Information Processing Board  (SIPB)
> > >>       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
> > >>       [hidden email]                        PGP key available
> > >
> > > _______________________________________________
> > > gnucash-user mailing list
> > > [hidden email]
> > > https://lists.gnucash.org/mailman/listinfo/gnucash-user
>
> If you had a 10,000 vehicle that you depreciated over 5 years at 1,800 per
> yeat (150/mo), leaving 1000 for salvage value, the accumulated depreciation
> account would have 9,000 in it, leaving a book value of !,0000.
>
> If you were to look in the clasified for a year 2000 similiar vehicle, it
> might have a market value of 4,000, so if you were to sell yours for 4,000.
> you would have the following ledger entries:
>
> Account             DR         CR
> Cash                4,000.                (this is the cash coming in the
>                                                    door)
> Other Income                 3,000.   (not from operations)
>
> Accum Deprec   9,000.               (this zeros out the accum deprec)
> Asset Vehicle               10,000.  (this gets it off your books)

--
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To invent, you need a good imagination and a pile of junk.
        - Thomas Edison.
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