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Depreciation - Balance sheet only or can I use Profit and Loss?

by Mary Peters
(Edinburgh)

Question regarding depreciation.

I need some advice regarding Fund Accounting.

I use a software package that allows me to depreciate my fixed assets, but to do so I have to include in the transaction the use of a Profit and Loss GL account.

My Chart of Account Structure is set up that all my accounts are of the type Balance Sheet. Is it OK for me to use a Profit and Loss account when I am Fund Accounting?

Kind regards

Mary




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Depreciation - Balance sheet only or can I use Profit and Loss?

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Nov 05, 2009
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starstarstarstarstar 		Depreciation
by: Vickey

Depreciation can be very confusing. Your accounting software is going to include the use of a Profit and Loss (Income Statement) account because depreciation is considered a noncash expense which goes on the income statement.

If you don?t already have one, you will need to set up a depreciation expense account.

Okay, this is where it gets a little confusing...depreciation also gets recorded on a balance sheet account also.

It is called Accumulated Depreciation. It is a contra asset account. The use of this account allows an asset account such as Equipment to continue to report the equipment?s cost while also reporting in the account Accumulated Depreciation the amount that has been charged to depreciation expense since the asset was acquired.

For example: say you spend $5000 for a new piece of equipment. You expect this equipment to last 5 years. Using the straight-line depreciation method, your accounting journal would look like this:

When you first make your purchase:

DR. Equipment $5000

CR. Cash $5000

Then each year, you would make the following journal entry to record the depreciation expense for the equipment:

DR. Depreciation Expense $1000

CR. Accumulated Depreciation $1000

I know you have software that automatically does this for you, but sometimes it helps to know the basic accounting concepts behind its actions.

Also...fund accounting is the same as regular accounting when it comes to using profit and loss (income statement) and balance sheet accounts. The only difference is you have to keep restricted funds separate from general funds.

Did this answer your question? If not feel free to comment back. Hopefully others will chime in with their comments regarding this confusing aspect of accounting.



[Church Accounting Package]

Includes:

The Basic and Fund Accounting ebooks which provides you with a better understanding of the basic concepts of church accounting and gives you some examples on recording common church transactions. You will also receive a free bonus fund accounting report that includes 3 methods for setting up QuickBooks Pro for fund accounting and examples of setting up fund accounting systems.

[And]

The Church Contribution Package which provides you with vital information for receiving charitable contributions here in the United States. Plus you get FIVE free bonuses!

www.freechurchaccounting.com

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