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3 min 58 sec
0:00
Remember the laptop?
0:19
An asset, not an expense
0:45
Straight-line depreciation
1:11
The depreciation entry
1:51
It isn't cash
2:21
Depreciation in Beeswax
3:00
Recap and quiz
Accounting 101
·
Keeping it straight
·
Episode 21
Depreciation
(Paid for once. Felt every year.)
Remember Maya's laptop from episode one? How depreciation spreads its cost over the years it's useful, the entry that does it, and why it isn't cash.
depreciation
fixed assets
straight-line
Transcript
0:00
Remember Maya's laptop? Episode one. Three thousand. Very shiny. She gave it a name. We've agreed not to say what.
0:09
Today: depreciation. How something you paid for once becomes a cost you feel every year.
0:20
When Maya bought the laptop, it wasn't an expense. It went on the balance sheet as an asset. Computer equipment, three thousand. The bank went down, the laptop went up, and profit didn't move.
0:32
But the laptop won't last forever. In about three years, it'll be slow, scuffed, and faintly sticky. Its value gets used up, bit by bit, while it earns money for the studio.
0:45
Depreciation spreads that cost over the years the asset is useful. The simplest way is straight-line. Cost, divided by useful life.
0:55
Three thousand, over three years. A thousand a year. Or about eighty-three a month, if you like your journals monthly.
1:02
If you expect to sell it for something at the end, take that off first. Here, we'll assume nothing. Nobody wants a sticky laptop.
1:11
The entry. Debit depreciation, an expense, one thousand. Credit accumulated depreciation, one thousand.
1:21
Accumulated depreciation is an odd one. It sits with the assets, but with a credit balance. A contra-asset. It builds up, year after year, against the laptop's original cost.
1:33
Cost, three thousand. Less accumulated depreciation, one thousand. Book value, two thousand, at the end of year one. Then one thousand. Then nothing. The laptop probably still works. It's just fully depreciated.
1:51
Notice what depreciation isn't. It isn't cash. No money leaves the bank. That happened on day one. Depreciation just moves the cost from the balance sheet into the profit and loss, one slice at a time.
2:06
And book value isn't what you'd get for it online. It's an accounting number, not a price tag. Tax rules for depreciation vary, too, and some countries let small businesses write assets off faster. That one's for your accountant.
2:21
In Beeswax, the laptop lives in an asset account, like computer equipment. Add an accumulated depreciation account alongside it, also an asset. It'll carry a credit balance.
2:33
Beeswax already has a Depreciation expense account. Post the year's depreciation as a manual journal. Debit depreciation, credit accumulated depreciation, and Save lights up once it balances.
2:48
There's no automatic depreciation schedule. Plenty of small businesses leave this journal to their accountant at year end, and that's perfectly fine. Either way, it's the same entry.
3:00
So. Big purchases that last are assets, not expenses. Depreciation spreads their cost over their useful life. Straight-line is cost divided by years. It isn't cash. And book value is cost, less accumulated depreciation.
3:18
Quick one. A camera costs twenty-four hundred, and should last four years, worth nothing at the end. What's the depreciation each year? And the book value after two years?
3:30
Have a think.
3:34
Six hundred a year. After two years, twelve hundred has built up, so the book value is twelve hundred.
3:42
Maya's laptop, meanwhile, is doing fine. She's stopped eating toast near it, which has added at least a year.
3:49
Next time: bad debts and credit notes. What to do when a client disputes an invoice, or stops paying altogether.