How do I record depreciation for a growing asset account?

tcorbin358 · ‎March 08, 2022

I apologize in advance if this is a dumb question (I'm fairly new to bookkeeping). I own a small audio company and we have been growing steadily over the last couple years of operation. I want to record depreciation for our more expensive microphones and speakers that will be added to our inventory this year, but I know that we will be acquiring more of these items in later years as we continue to grow and expand.

Here's the situation I foresee us running into: I acquire a new set of speakers this year and put them to use. The new speakers will have a "useful life" of 5 years and I would like to depreciate them (most likely using MACRS?) over this time. However in another year or two, I acquire another new set of speakers and put them into use. Do I need to create separate accounts for each of these items to record their offset depreciation schedules? Or can I use a general "Speakers" asset account to record all of my purchases and differing depreciation expenses using journal entries within that account?

tcorbin358 · ‎March 08, 2022

A follow-up question in regards to the microphones: If I purchase over $2,500 of microphones at once (which is our capitalization threshold), am I able to capitalize these items and record depreciation even though each individual item has a value less than the capitalization threshold?

Rainflurry · ‎March 08, 2022

@tcorbin358

Congratulations on your business growth - that's fantastic.

Unless you want to extend the depreciation period using MACRS, Section 179 allows you to fully depreciate qualified tangible personal property (equipment) used in a trade or business in the year it is put into service. There are some exceptions so make sure Section 179 applies.

Some taxpayers prefer to extend that deduction (using MACRS) to future years because they project higher taxable income in the future, therefore, the deduction saves them more in taxes on that higher income.

tcorbin358 · ‎April 05, 2022

Thank you for your response. However, I don't think this really addressed what I was asking. I understand how Section 179 and MARCS works, but I was mainly asking how exactly I should track these in my Chart of Accounts... what would be the best way to capitalize an asset account that continues to get added to and grows over the years? Do I need to make a separate account for each new purchase? Or can I keep everything under one account and simply track each item's depreciation schedule on a spreadsheet?

Rainflurry · ‎April 05, 2022

@tcorbin358

I mentioned Section 179 because there was no reference to it in your original post so I did not know if you were aware of it. If you go with Section 179, then there is no tracking the depreciation in your COA - you expense it fully as a Section 179 Depreciation Expense the year it is placed in service. However, you do need to set up a separate Section 179 Depreciation expense account to record it.

For most small businesses wanting to maximize cash flow, there is no reason not to take advantage of fully depreciating the asset the year it is placed in service.

If you go with MACRS then, yes, you need to either track each asset individually in QB (can get unwieldy) or on a separate spreadsheet. I've seen CPAs do it both ways.

Fiat Lux - ASIA · ‎April 05, 2022

@tcorbin358

As another option, you can have a 3rd party app to do so automatically and integrate it with your QBO. It costs GBP 15/month

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How do I record depreciation for a growing asset account?