How do I allocate accounts in order to create depreciation journals?
Depreciation refers to: (1) the decrease in value of assets and (2) the systematic allocation of the recorded cost (value) of assets, over its useful life. It is a way of matching the cost of a fixed asset with the revenue (or other economic benefits) it generates over its useful life.
Depreciation is the gradual charging to expense of an asset's cost over its expected useful life. The reason for using depreciation to gradually reduce the recorded cost of a fixed asset is to recognize a portion of the asset's expense at the same time that the company records the revenue that was generated by the fixed asset.
The basic journal entry for depreciation is to debit the Depreciation Expense account (which appears in the income statement) and credit the Accumulated Depreciation account (which appears in the balance sheet as a contra-account that reduces the amount of fixed assets). Over time, the accumulated depreciation balance will continue to increase as more depreciation is added to it, until such time as it equals the original cost of the asset. At that time, you stop recording any depreciation expense, since the cost of the asset has now been reduced to zero.
Click on the following ATO website link for more information on Depreciating Assets.
If correctly set up, Cashbook allows you to automatically create Depreciation Journals for assets entered into the Fixed Asset Register. Click on the following link for step by step instructions on How to Add an Asset to the Fixed Asset Register.
Note: There are two Valuation Methods you can use to calculate asset depreciation.
Click on the following ATO website link: Prime cost and diminishing value methods for further information.
Below are examples of how these accounts should be set up in your Chart of Accounts:
To Create Depreciation Journals:
Note: If you receive a message like ' Asset group "Buildings" does not have a valid depreciation and/or accumulated depreciation accounts set. Would you lilke to ignore this error and continue?' this indicates you have not allocated accounts correctly to the Asset Group/s.