Depreciation Methods

The Goldenseal accounting software uses Depreciation Methods to automatically calculate financial and tax depreciation for real estate and equipment accounts.

DEPRECIATION METHOD BASICS
Entering Depreciation | Data Fields | Calculation Methods
First Year Convention | Using Depreciation

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Accounting Software | Business Management Software
Equipment Tracking Software | Property Management Software

RELATED TOPICS
Equipment Accounts | Real Estate Accounts

Entering Depreciation Methods

To enter a Depreciation Method, follow these steps:

Choose Cost Setup from the Costs menu, then choose Depreciation from the submenu.
Click the New button, or click on an existing item and click the Edit button.
Enter details for the depreciation method.

Data Fields

Enter the following information for each Depreciation Method record:

Name-- Type in a brief name for this depreciation method. This is the text that will appear in clairvoyant fields.
Description-- Type in any comments you'd like to make about this item.
Overhead Account-- Choose the overhead account that is used for these depreciation costs.
Calculation Method-- Choose the basic calculation method used to calculate depreciation for this item.
First/Last Year-- Choose a method for handling the first and last year depreciation.
Lifetime-- Enter the lifetime (in years) over which depreciation or amortization will occur.
Put In Service-- Enter the date that items using this method are put into service. Leave the field blank if you want to use a different service date for each item.
Depreciation Table-- For most depreciation methods, the depreciation percentage for each year is calculated automatically. If you choose Custom as a calculation method, you can enter your own depreciation amounts for each year.

Depreciation Calculation Methods

The Goldenseal accounting software allows you to use several different calculation methods to compute depreciation or amortization.

For tax depreciation, use whichever method is required by tax regulations, based on the type of asset and the year it was placed in service.

For general depreciation, use whichever method works best for you. Your accountant can help you decide on the depreciation methods to use, based on usual standards for your industry and your accounting needs.

HINT-- ACRS, MACRS and Declining balance methods result in the fastest depreciation. Sum of years is slower, and straight line depreciation is slowest.

Choose from any of the following depreciation calculation methods:

Capitalized-- The item will never be depreciated or amortized.
Expensed-- The item will be fully depreciated during the first year.
Straight Line-- Depreciation or amortization will be evenly divided over the lifetime of the item.
150% Declining Balance-- This method uses 150% of the straight-line percentage for the first year. The same percentage is then applied to the remaining balance, each succeeding year.
200% Declining Balance-- This method uses twice the straight-line percentage for the first year. The same percentage is then applied to the remaining balance, each succeeding year.
NOTE-- This method is sometimes called Double Declining Balance, or DDB.
150% MACRS-- This method is similar to the 150% declining balance method, but it switches to straight line rates when those would be higher than the declining balance rate.
200% MACRS-- This method is similar to the 200% declining balance method, but it switches to straight line rates when those would be higher than the declining balance rate.
ACRS-- Accelerated Cost Recover System is used by the IRS for items placed in service between 1980 and 1987. It is based on tables for 3-year, 5-year, 10-year, 15-year, 18-year and 19-year lifetimes. It is not available for other lifetime quantities.
Custom-- No percentages will be calculated. Type in depreciation percentages for each year of the lifetime.
Sum of Years-- This method uses a complex formula based on the sum of the digits for each year in the lifetime. Depreciation amounts start high, and decline steadily over the lifetime.

For all depreciation calculations except capitalized and expensed, the first year's depreciation is adjusted using the first-year convention .

First Year Convention

You can select from several different conventions for handling the first year's deprecation.

Choose any of the following:

Day-- The first year's depreciation will be adjusted by the number of days between the purchase date and the last day of the year, divided by the number of days in the year.
EXAMPLE-- A purchase on June 7 will have an adjustment of 207/365, or 56.7%.
Month-- The first year's depreciation is adjusted by the number of months from the middle of the month of purchase, to the last day of the year, divided by 12.
EXAMPLE-- A purchase on June 7 will be treated as a June 15 purchase, with an adjustment of 6.5/12, or 54.2%.
Quarter Year-- The first year's depreciation is adjusted by the number of quarters from the middle of the quarter of purchase, to the last day of the year, divided by 4.
EXAMPLE-- A purchase on June 7 will be treated as a May 15 purchase, with an adjustment of 7/12, or 62.5%.
Half-Year-- All purchases will be calculated as taking place in the middle of the year, with an adjustment of 50%.
First of Year-- All purchases will be calculated as taking place at the beginning of the year, with a full year's depreciation.

HINT-- Current US tax policy uses the mid-month convention for real estate depreciation. Most other items use the half-year convention, although in some cases the mid-quarter convention may be required.

Using Depreciation

To use a depreciation method, open a Real Estate or Equipment Account and enter two depreciation methods-- one for your general business management, and one for tax purposes.

When you look at the Balance Sheet and other financial reports, Goldenseal automatically calculates the value of each equipment and real estate account, based on its depreciation method, purchase date, purchase price, salvage value and business percentage. This value is calculated as of the Start Date of the report.

NOTE-- If a report uses a start date that is before the purchase date, the value of that equipment or real estate account will be zero.