QuickBooks 2005: The Missing Manual

Depreciation

When you own an asset, such as the deluxe Cat-o-matic cat herder, the machine loses value as it ages and clogs with fur balls. Depreciation is an accounting convention, intimately tied to IRS rules, that reduces the value of the machine and lets your financial reports show a more accurate picture of the value of the assets you own.

But depreciation doesn't deal with hard cash, which is why you must create a general journal entry to enter depreciation. Unlike some other general journal entries with a wide choice of accounts, depreciation journal entries are easy to create, because the accounts you can choose are limited. The debit account is an expense account, usually called Depreciation Expense. (If you don't have a Depreciation Expense account, see page 37 to learn how to create it.) The offsetting account is another fixed asset account called Accumulated Depreciation.

For a depreciation general journal entry, you want to reduce the value of the fixed asset account and add value to the Depreciation Expense account. If you remember that debits increase the value of expense accounts, you can figure out that the debit goes with the expense account and the credit goes to the fixed asset account. Figure 13-6 shows how depreciation debits and credits work:

Figure 13-6.  If you have several assets to depreciate, you can add a credit line for each asset. In this case, the Depreciation ...