How to Dealing with Depreciation in QuickBooks 2012 - dummies

How to Dealing with Depreciation in QuickBooks 2012

By Stephen L. Nelson

Depreciation is an accounting gimmick to recognize the expense of using a fixed asset over a period of time. QuickBooks 2012 can help you record depreciation expenses.

Although you may not be all that familiar with the mechanics of depreciation, you probably do understand the logic.

For the sake of illustration, suppose that you bought a $12,000 delivery truck. Suppose also that because you know how to do your own repair work and take excellent care of your vehicles, you will be able to use this truck for ten years. Further suppose that at the end of the ten years, the truck will probably have a $2,000 salvage value (your best guess).

Depreciation says that if you buy something for $12,000 and that you can later sell it for $2,000, that decrease in value can be apportioned to expense. In this case, the $10,000 decrease in value is counted as expense over ten years. That expense is called depreciation.

Accountants and tax accounting laws use a variety of methods to apportion the cost of using an asset over the years in which it’s used. A common method is called straight-line depreciation. Straight-line depreciation divides the decrease in value by the number of years that an asset is used. An asset that decreases $10,000 over ten years, for example, produces $1,000 a year of depreciation expense.

To record depreciation, you use a journal entry like the one shown here.

Journal Entry 11: Recording Fixed Asset Depreciation
Account Debit Credit
Depreciation expense 1,000
Acc. dep. — delivery truck 1,000

Journal Entry 11 debits an expense account called “depreciation expense” for $1,000. Journal Entry 11 also credits a contra-asset account called “accumulated depreciation — delivery truck” for $1,000. (By convention, because the phrase “accumulated depreciation” is so long, accountants and bookkeepers usually abbreviate it as “acc. dep.”)

Note also that you need specific individual accumulated depreciation contra-asset accounts for each specific individual fixed asset account. You don’t want to lump all your accumulated depreciation together into a single catch-all account. That way lies madness and ruin.