Depreciation is the accounting term for an expense that reflects the loss in value of an asset over time. It’s a non-cash expense -- meaning depreciation doesn’t come out of your bank account or pocket, but is still deducted from your business income before calculating taxes. There are a couple key things to know about depreciation:
You can only depreciate an asset, such as a car, building, or machine used for business.
An asset’s ‘useful life’ is how many years you can depreciate an asset for. The IRS has predetermined useful lives for different asset classes. A business vehicle, for example, should be depreciated over 5 years.
In Hurdlr, Free and Premium users can track depreciation in the Expenses Dashboard using the Depreciation expense category.
When you categorize an expense as Depreciation, the total amount of the entry will be counted toward your tax deductions. So, you should only enter the amount you are depreciating for the year rather than the total cost of the asset you are depreciating.
For example, if you buy a new car for $10,000 and you are able to depreciate $2,000 per year over 5 years, then you could enter $2,000 in the Expenses Dashboard and categorize this as Depreciation. You can even set your depreciation expenses to automatically recur every year.
In Hurdlr Pro, you’re able to track your business assets as well as corresponding depreciation for your assets.. This gives you a better idea of your business P&L, and also provides a more accurate Balance Sheet and other accounting reports.
In the example of purchasing a $10,000 car, you would be able to track the purchase of a new car as an asset in the expenses tab using the Advanced categories.
Then you can track the amount you are depreciating by entering a manual journal entry in the General Ledger. Sticking with the example above, if you can depreciate $2,000 per year, you would enter a manual journal entry crediting the Automobile Cost account $2,000 and debiting the Automobile Accumulated Depreciation account $2,000.
In doing this, when viewing your Chart of Accounts, you’d see your asset reflecting the current value of the asset as well as the corresponding depreciation.
Disclaimer: The information contained here is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.