How to Handle Depreciation

Depreciation is used in conjunction with assets. When you purchase an asset, the full cost of the asset cannot be taken as an expense. It is usually allocated to an asset account.

At the end of each year you may write-off a percentage of the value of the asset, and allocate that portion to an expense account. This is known as depreciating the asset.

 The amount that can be depreciated depend on the type of asset, and is based on rulings given by SARS. Refer to your accountant for more details.

Simple Worked Example

We have purchased an asset for R100 000 and now wish to depreciate it by 10%

The original transaction, from your bank account was allocated to an account called Fixed asset. (There was probably also a VAT portion that has been claimed).

Now create an EXPENSE account called Depreciation Expense.

What we want to do is deduct R10 000 from the Fixed asset account and transfer it to the expense account.

How? This is one of the few times that you need to pass a JOURNAL in EconoAccounting.

Go to EDIT Journals:
Choose Depreciation Expense
Add a new transaction
The description is "Depreciation of Fixed asset". The value is 10000 (must be a positive number)
Save and allocate this to the FIXED Asset account.

You can extend this to create an Accumulated Depreciation Account which is  an ASSET account. Instead of allocating the deprecation expense to the fixed asset account you can allocate it to the Accumulated Depreciation account.

 Take a look at your complete financial accounts to see the affect of depreciation.