Other assets and depreciation

Current and fixed assets, prepaid items and suspense accounts, and depreciation - why, book and tax depreciation, and the linear, geometric and sum-of-digits schemes - recorded with ordinary Accounts and a scheduled transaction.

Assets in the balance sheet are grouped by how long they last. Neither group needs a special Account type: use ASSET (or BANK, CASH) Accounts and build the tree as suits you.

Current assets

Current assets are expected to last a year or less. Examples:

Short-term receivables: money lent to someone you trust and expect back within a year. Lending 500 debits Assets:Current Assets:LoanToJoe and credits the bank; each repayment does the opposite. The word loan in the name is a tip-off that you really have a receivable.
Reimbursable expenses and travel advances: money you spend for an employer and later recover. Keep one Account per trip if you want the details apart.
Prepaid items, such as insurance paid for a year, which you spread over the year as it is used up.
Deposits: if the deposit will be returned, record it as an asset (debit Deposits Receivable); if you write it off, debit an expense. Decide when you pay.
Suspense or wash Accounts: a place for amounts you cannot yet place. Empty it as soon as you know what they were.

Fixed assets

Long-term, or fixed assets, last longer than a year: land, buildings, vehicles, equipment and intangibles such as patents. Land does not wear out, so it is recorded at cost and its rise in value is not recorded until you sell; the cost of land bought with a building is split between them. Buildings, vehicles and equipment wear, which is what depreciation accounts for.

To show a sale, compare the price with the cost less depreciation to find the gain or loss (Lots and capital gains).

Depreciation

Depreciation is the accounting method for expensing a capital purchase over time. Two reasons to record it: to keep an estimate of your net worth in personal books, or to match the cost of equipment against the income it earns in a business.

Term	Meaning
Original cost	What the asset cost, including shipping, installation and training needed to use it
Book depreciation	The amount you record in your financial statements each period
Tax depreciation	The amount you take for income tax, by rules the tax authority sets
Accumulated depreciation	The total book depreciation taken so far
Net book value	Original cost less accumulated depreciation
Fair market value	What the asset could be sold for now
Salvage value	What you estimate it will sell for at the end of its useful life, usually taken as zero

Personal books. Record the purchase as an asset, and each year a depreciation expense; the net book value then tracks the market value. There are no rules: use your best judgement, and only for assets of notable worth such as a car or boat.

Business books. Capitalise what you expect to help earn income for more than the current year, with the costs of getting it into use; do not capitalise goods bought for resale. Choose a scheme for book depreciation; tax depreciation is fixed by your tax code and often differs.

Schemes

For an asset costing 1,500 and a salvage value of zero:

Linear: the same amount each period over the useful life; 300 a year for 5 years takes 1,500 to 0.
Geometric (declining balance): a fixed percentage of the previous period's value, so more early on and a remaining value at the end; 30% a year gives 450, 315, 220.50, and so on.
Sum of digits: a falling fraction of the cost. For 5 years the fractions are 5/15, 4/15, 3/15, 2/15 and 1/15.

Stop when the net book value reaches the salvage value.

Recording it

Each period's depreciation is one Transaction: debit an EXPENSE Account (Expenses:Depreciation) and credit a contra asset Account (Assets:Fixed Assets:Computer:Accumulated Depreciation), or credit the asset directly. A fixed amount every period is a scheduled transaction, made with scheduledTransaction.create; amounts that change each period are posted one at a time with transaction.post.