Depreciation accounts and capital allowances

[joeq]

Hi there,

I’m not an accountant so I’m very much just getting confused by this, but I hope someone can shed some light on depreciation for me.

My company has purchased an office printer for £227.52. I want to depreciate this over 3 years and so have created a journal for the first year’s depreciation of 1/3 of the cost at £75.84 by:

• CR 0030 Office Equipment £75.84
• DR 8004 Office Equipment Depreciation £75.84

I believe this is correct but as I understand it, I can claim the depreciated cost as a capital allowance from my tax liability. So my question is, why is 8004 classed as an add back in the tax summary? Should it not be a deduction as it is a capital allowance? Or do I need to post this to a deductible depreciation account other than 8004?

Additionally, can anyone shed any light on the difference between 0031 and 8004 as they are both depreciation accounts sitting in different sections? I believe it is something to do with accumulated depreciation but can’t be entirely sure.

Thank you very much for any light that can be shed!

Best wishes,

Joe

[alan.mackintosh]

0031 is for accumulated depreciation, 8004 is the P&L expense account. To depreciate an Asset, I believe the journals would be:

DR Fixed Asset
CR Bank (or if bought on credit terms, process the usual way)

DR Depreciation Expense
CR Accumulated Depreciation

I’m not a tax accountant so don’t want to advise on CAPEX.

[Edit] Each subsequent year when doing the journal for depreciation it would be:
DR Depreciation Expense
CR Accumulated Depreciation
That way, the accumulated depreciation will show n years worth of depreciation.

[Paul_Courtier]

Capital allowances are an adjustment to tax on the tax return. Not the accounts which is where your getting confused.

Also, the reason for the credit on the p and l is your effectively obtain relief in year one instead of over the 3 years. So it’s written back.