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How to account for depreciation on the books
Depreciation is the natural reduction in value of any of your company's fixed assets.For example, your vehicles and your computers are worth less every year, or they depreciate every year.If you are in charge of bookkeeping, you will need to account for that depreciation.The reason you need to account for it is that if you enter in $20,000 on an asset sheet for a new vehicle, the amount that the vehicle is actually worth will change every year.If you don't account for depreciation, in ten years, that vehicle will still look like $20,000 asset on your books.If the vehicle is only worth $2000 by that time, it is misleading and wrong to have the car listed as a $20,000 asset.
Difficulty:medium easy Steps Step 1:Set up a depreciation account.Using a double-entry account, set up a depreciation account with depreciation registered on the debit side and accumulated amortization registered on the credit side.You should make a separate entry for every type of item that might depreciate.For example, in the account column, you might have an entry for Computer Depreciation and an entry for Accumulated Amortization, Computers.Once the registry is set up, use it just as you would any other double entry account.That is, make an entry for both the debit and the credit at the end of the year.
Unless you really like statistics and handling lots of numbers, you might try out a computer program to track the depreciation of your assets.A computer program can save you time.What's more, fixed asset programs also proved guidelines for tax rules.These programs calculate depreciation for "alternative minimum tax". This will help you make up for depreciation by minimizing the assets that you have to report to the IRS. There are other acceptable ways to estimate depreciation, on is to estimate the percentage that an item will depreciate over a year of use.For example, a computer might depreciate by about 30% per year.
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