Hi I have recently bought a £250 laptop for business use for. I know I have to create a journal for depreciation but cant get my head round it. Is there a step by step guide available on how to do this in QF? I also have am item of equipment on my balance sheet which is now worth £0 but I dont know how to get this off the balance sheet.
Any help much appreciated
You would need to create a journal, similar to the one outlined in this post:
http://community.quickfile.co.uk/t/struggling-with-depreciation/2837/2?u=qfsupport
For a laptop, I would think that the nominals that @FaradayKeynes suggested in their post would be suitable, but I’m not an accountant so it may be best to double check.
With the item of zero value, do you still have the item in your business or have you sold it or disposed of it?
thanks
I am still not fully understanding journals.
The laptop was £250, so tagged as a purchase. When entering the journal what figures do I enter into the journals (for eg. laptop now worth £200. Also both the journals mentioned in the link you attached are depreciation journals, is this right?
Yes, there are two nominal codes both called “office equipment depreciation”, the one in the 0xxx range on the balance sheet represents the total accumulated depreciation to date as a credit and the one in the 8xxx range represents the amount of depreciation allocated to this year’s profit and loss report as a debit.
You don’t actually reduce the asset value in the original nominal code until the point when you sell or write off the asset (at which point you reverse both the original purchase price and the accumulated depreciation), but the balance sheet has the option to show net book values by subtracting each depreciation b/s account from the corresponding asset code.
OK thanks but sorry still confused!
I click on the office equipment in the balance sheet, then click on New Journal tab.
Then choose 0030 and enter what amount in debit or credit?
then underneath choose 0031 or 8004? and what amount in debit or credit?
Sorry but there is no guide anywhere on how to use journals that I could find
For office equipment depreciation you can post a two line journal as follows:
Dr 8004 - Office Equipment Depreciation
Cr 0031 - Office Equipment Depreciation
This journal lowers the value of the asset on the balance sheet and charges it to the P&L.
Disclaimer: I’m not an accountant so always seek a professional opinion
You have to decide how you want to depreciate it. First you need to decide how many years useful life the asset will have and what is its likely residual value at the end of that time (which may be zero). The difference between these two figures is the total amount you need to depreciate over the course of that useful lifetime, and you then have to decide how to divide that amount between the various years.
For your example I’ll assume purchase price £250, useful life 5 years (which is probably an over-estimate), residual value nil.
The two most common approaches are:
- Straight line - where you simply assign an equal amount to each year - in this case you would depreciate £50 in the first year, another £50 in the second year, etc. until it’s completely written off in year 5.
- “reducing balance” - where you fix a percentage of the remaining value to depreciate each year - you might depreciate £125 in year 1 (50% of £250), then £62.50 in year 2 (50% of the remaining £125) etc, and write off the whole remaining balance in year 5.
My gut feeling is that the second option is more appropriate for things like computers, but I’m not an accountant. In fact if you’re only talking £250 your accountant might just say skip the balance sheet altogether and just charge the whole thing to P&L in one year, it depends on your business as to whether this amount is significant in the grand scheme.
Quick question (3 actually) in relation to the above.
At what point do you need to start depreciating the item?
Is it from a year after purchase?
If I’m doing the Accounts for the year in which it was purchased, do I need to do anything before the following year?
It’s a personal choice really. Some people choose to depreciate for a full year in the year of purchase, but then won’t depreciate it at all in the year when the asset is disposed of.
e.g. if you buy an asset for £100 and your policy is to depreciate 10% per year on a straight-line basis. Then you would introduce a depreciation charge of £10 in the year you purchased it (and every consecutive year until you dispose of the asset or until you’ve fully depreciated the asset to £0).
Other people will pro rata the depreciation charge based on at which point in the year the asset was purchased.
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