Depreciating Equipment

Depreciation is an accounting convention that allows a company to write off an asset’s value over a period of time, commonly the asset’s useful life. Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of the asset in year one, depreciating the asset allows companies to spread out that cost.

Abio allows you to set up depreciation classes that control how units of equipment are depreciated. Using the rules defined in the depreciation class and the purchase price of the unit, Abio generates the journal entry to depreciate the equipment.

Depreciation EXPENSE G/L Account

Each type of equipment can have their own depreciation expense G/L account set up. To define the depreciation expense for a type of equipment, navigate to [g] Equipment, then [u] Set Up, then [b] Equipment Type Entry.

[g] Equipment | [u] Set Up | [b] Equipment Type Entry

We want to record depreciation for Air Breakers in a G/L account we set up for that purpose.

[g] Equipment | [u] Set Up | [b] Equipment Type Entry
Accumulated Depreciation G/L Account

Accumulated depreciation will be posted to the depreciation expense control account. To review this account, Navigate to [d] General Ledger, then [u] Set Up, then [f] Control Account Entry.

The depreciation expense account is recorded at the bottom of the third tab.

[d] General Ledger | [u] Set Up | [f] Control Account Entry
Depreciation Class

The CRA specifies Classes of depreciable property. To set up a depreciation class in Abio, navigate to [g] Equipment, then [u] Set Up, then [e] Depreciation Class Entry.

In our demo database, we’ve set up one depreciation class.

[g] Equipment | [u] Set Up | [e] Depreciation Class Entry

This depreciation class allows you to write off 50% in the first year, and 10% in subsequent years. The depreciation is calculated each month.

[g] Equipment | [u] Set Up | [e] Depreciation Class Entry
DEPRECIATION FIELDS ON EQUIPMENT ENTRY

On the equipment entry screen, the purchase price and date are recorded. If you purchased this on an accounts payable invoice posted to this equipment, with cost type ‘P’urchase, these fields will be populated when that invoice was recorded.

Otherwise, you can fill those fields in with the ‘C’hange action. You’ll also want to select a depreciation class.

[g] Equipment | [a] Equipment Entry
Depreciate Equipment

Navigate to [g] Equipment, then [j] Depreciate Equipment.

The Depreciate Equipment utility lets you select a range of equipment and/or a depreciation class. You can also select the date and G/L period for the journal entry that will be created to record the depreciation.

You can ‘Review’ what depreciation amounts Abio calculates, before they are applied to the database.

[g] Equipment | [j] Depreciate Equipment

Abio will process each equipment the current company owns, within the selection range, and attempt to calculate the depreciation due. A number of factors may prevent Abio from being able to determine the depreciation. Each different factor is colour coded.

[g] Equipment | [j] Depreciate Equipment

In the above example, the first unit is missing a depreciation class, and the yellow rows don’t have a G/L set up on for their type of equipment.

Rows will be displayed in red if the unit doesn’t have a purchase amount recorded.

[g] Equipment | [j] Depreciate Equipment

If we fix a few of these errors, we’ll be able to see what the depreciation would be. We can add a depreciation class to the first unit.

[g] Equipment | [a] Equipment Entry

And we can set up a depreciation G/L account for the AC_ equipment type.

[g] Equipment | [u] Set Up | [b] Equipment Type Entry

Now when we Depreciate Equipment, those rows have a white background and a calculated depreciation amount.

[g] Equipment | [j] Depreciate Equipment

If you click on any of the date hotlinks, you’ll see the depreciation Abio calculated for each G/L period since the last time depreciation was recorded for the selected equipment unit.

[g] Equipment | [j] Depreciate Equipment

The bottom left portion of the screen show the Journal Entry that will record the depreciation.

[g] Equipment | [j] Depreciate Equipment

If everything looks correct, you can Apply the changes to the database.

[g] Equipment | [j] Depreciate Equipment

The equipment now displays the accumulated depreciation.

[g] Equipment | [a] Equipment Entry

The Depreciation Log tab shows the depreciation calculated for each G/L period.

[g] Equipment | [a] Equipment Entry

Abio will only depreciate a unit of equipment once in a G/L period. If you run the ‘Depreciate Equipment’ utility a second time, the equipment units that have already been depreciated will display with a green background.

[g] Equipment | [j] Depreciate Equipment