Depreciation

jewels.p

Hi,

Following on from my previous Thread about the difficulty I'm having with Prepayments and Accruals, I am now onto Depreciation and its just as bad!:confused1: knowing which ledger and on which side to post it to is totally confusing me. Does this Unit ever get any easier?:huh:

Paul24

jewels.p wrote: »

Hi,

Following on from my previous Thread about the difficulty I'm having with Prepayments and Accruals, I am now onto Depreciation and its just as bad!:confused1: knowing which ledger and on which side to post it to is totally confusing me. Does this Unit ever get any easier?:huh:

Deprecitaion expense debits P&L
An asset is a debit in the balance sheet, so the accumulated depreciation figure is reducing the book value of the asset needs to be a credit in the balance sheet.

dobbieobby

Hey Jewels,
It does get easier, trust me!
Have a look at a balance sheet in your text book.
See at the top you've got fixed assets?
There's 3 columns, which throw me at first, but have a look at the figures.
The first is the cost of the, let say, company van.
The second column is really a minus (although it doesnt show as a -) as it's the accumulated depreciation, so the last column is column 1 - column 2 =
The depreciation is easy once you get the hang of it, so keep at it and it WILL fall into place.

mark057

It can be difficult to get yr head around.

Prepayments are payments which are actually paid in the current financial year e.g advance payment of rent but which are not to be shown as an actual expense until the next financial year.

The easist way to do the bookkeeping for this is:

CR Bank account
DR Prepayment account (rather than expense account)

An accrual is an expense due in the current financial year but one which will not be physically paid until the next financial year e.g gas bill which straddles the financial year end.

The bookeeping for this the follows:

Dr expense account e.g utility account
CR accruals account

To complete the bookkeeping for a prepayment just think of this:

Dr- Expense account in the new financial year.
Cr- prepayment account which balances the account and brings the balance to zero.

For accruals:

Dr-Accruals account, which balances the account to zero
CR - Bank account because the money is physically being paid.

Depr is simple.

Your asset account should always be debited because increases in assets go onto the debit side of an account.

Accumulated depr reduces the value of an asset so should always be credited.

P & L - Dr annual depr

Balance sheet - Cr accumulated depr

The accumulated depr is the total amount of depr chargedagainst the asset during it's life whereas the depr charge is just the amount of depr incurred during the current financial year.

Hope that helps

Mark