How to Track Amortization with QuickBooks Asset Accounts

Posted by on Jul 19, 2011 in Other Accounts | 1 comment

I am not going to delve into the accounting side of amortization, but I will show you how to track it. The amortization that I am speaking of has to do with Fixed Assets.

The rule of thumb that I use to capitalize fixed assets, are those priced above $500 and the type of asset it is – otherwise I would expense it. These days assets such as computers are depreciated 45% in the first year, and then that percentage is used yearly until the original value is zero. So just about half of the value is written off in the first year.

Since computers evolve so quickly these days, I would consider writing them off completely after three years, as there really is little, if any, value remaining after that.

First I need to set up the accounts to work with. Since I have been speaking about computers, and most companies have one or more, I will use computers for the example.

To set up this account I will click on the Menu Bar/Lists/Chart of Accounts, right click on my mouse and choose New. From there I will click on the button besides Fixed Assets (major purchases), then Continue, proceed to type in Computer Equipment in the Account Name field and Save & Close.

When I am finished the new accounts and their amounts will look like the screen shot above.

I need to set up two more Fixed Asset Type subaccounts and those would be one for the asset’s Cost and the other for Accum. Amort. (accumulated amortization). The 7,112.20 that was paid for the new computers, is reflected in the Cost subaccount.

When I am finished the new accounts and their amounts will look like the screen shot above. Now to recognize the accumulated amortization (Balance Sheet) and the amortization expense (Profit & Loss).

At the time of this writing I am using CRA’s Class 45 (Classes of depreciable properties) for the Capital Cost Allowance percentage (45%). To arrive at the monthly figure, I will multiply the cost (7,112.20) times 45% which equals 3,200.49. I then divided that by 12 to obtain my monthly accumulated amortization amount of 266.71 (rounded up).

Now it’s time for me to set up the general journal and memorize it.

To create a general journal I go to Menu Bar/Company/Make General Journal Entries and enter in the information that is shown on the right. Since I want to use this entry for a fiscal year, I will memorize it BEFORE  – I Save & Close.

To do that I will go to Menu Bar/Edit and Memorize General Journal.

In the Name field I will key in Computer Amort., click on the Automatically Enter button, choose Monthly from the drop-down box, change the Next Date to 01/31/2009,  key in 10 in the Number Remaining field and finish by clicking on OK.

This will take me back to the Make General Journal Entries window where I will Save & Close.

The memorized accumulated amortization journal entry (that’s a mouth full) will post every month until the end of the fiscal year, and will subsequently reduce the value of the Computer Equipment in doing so. The other side of the entry recognizes the Amortization expense, found on the Profit & Loss Statement.

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