Introduction To QuickBooks Accounting System
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Sample Chapter From Introduction To QuickBooks Accounting System
Copyright © Steve Pightling
Understanding Depreciation
Most production assets we own do not expend themselves in one year, thus an asset which may be used for five years is not an expensed item but is used up in the five year period. A tractor, costing $10,000 which is totally used up would have an annual expense of $2,000. But it goes deeper than this. Most assets will have a salvage value greater than zero at the end of this period. This estimated salvage value must be subtracted from the original value to get the ending value. The ending value becomes the basis for annual expense. In these terms, our tractor costing $10,000 with an estimated salvage value of $2,000 has an annual expense of $1,600 per year. This is called straight line depreciation.
QuickBooks does not compute depreciation, but instead requires entering the original cost and accumulated depreciation to this year. It then calculates the current value of the asset.