Small Business Bookkeeping & Accounting

Small Business
Bookkeeping & Accounting

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Depreciation

This is an entry that you can make the call on whether you're going to deal with it monthly or annually. It's not a cash expense, in fact it's often sniffed at as a "paper expense" but if you have a pretty good sized company and you think you're making great money, don't count those chickens until you figure in your depreciation. It's real stuff, because things DO in fact wear out and have to be replaced, and this is where that process is built into your books.

Basically, your accountant will give you a sheet listing your assets and the amount they will depreciate this year. You take those totals, and say, OK, my tools are going to depreciate a total of $890 this year. Take that number and divide by 12, and you have your monthly depreciation, which in this case is $74.17. So to give yourself a really good idea of where you are, each month make the entry of debit account 5341 (depreciation expense) $75, and credit 1601 (accumulated depreciation, tools) by the same amount. If you have office equipment, vehicles, buildings, all those will have their separate totals that you work with the same way.

Most computer accounting systems have a setup where you can tell it to make those entries for you automatically each month, and you won't have to worry about it. Don't worry about being too exact - at the end of the year, you'll go through each of these numbers and adjust it so it's exactly in line with your depreciation schedule. Making the entries monthly saves you the shock when you thought you'd made $20,000, and your depreciation expense at the end of the year cuts that in half.