On Fri, 29 Oct 2004 09:59:29 -0300, Jon Lapham <[EMAIL PROTECTED]> wrote:Basic Concepts: http://www.gnucash.org/docs/v1.8/C/gnucash-guide/dep_concepts1.html
1) I added the first sentence definition "Depreciation is the account method for tracking the decreasing value of an asset over time." I know that you do not like the "decreasing value" part of that definition, so please suggest something else. But, I think it is important that the first sentence define in some way what we are talking about. Remember, this will be the first time many people read about this topic.
The way that we have made the distinction between personal and business makes this a difficult definition. On the personal side, your definition is correct. On the business side it's not.
So, on the business side, it's not so much that *I* don't like the "decreasing value" part, it's just that that's not the reason for depreciation. If you were to buy a house as rental property, you would record depreciation on the house. This would cause the net book value of the asset to go down. However, in real terms the value of the house is going up (hopefully).
So a better definition would be "depreciation is the process of
expensing capital purchases over time" or "the matching the expense of
a capital purchase to the revenue generated by that asset". My
problem is wording it in such a way that the person reading it for the
first time would understand it. I look at the definition I just
wrote, and I'm not sure if it's understandable enough for our reader. What do you think?
Well, I think it is better to be accurate/complex than simple/wrong. So, I changed the definition to your "...expensing capital purchases over time...".
3) The list of terminology is great!
Thanks
Oh, I forgot to ask before. The definition of "Book depreciation" should mention something about accurately reflecting resale value? (as opposed to "tax depreciation") Or is that not true?
4) Do you think it is necessary to have the last paragraph for the Personal Finances section that discusses estimating capital gains? There is another chapter that talks about the subject... maybe we should add a link to that chapter?
You're right. I think a link to the unrealized gains section would be appropriate.
Okay, I just removed the paragraph.
6) I added the opening paragraph "Whereas in the personal finance world depreciation is used to estimate net worth, in the business world depreciation is used as a mechanism for receiving a tax deduction. As such, it is highly regulated by tax laws." I'm not sure this is the best openning paragraph, but I think we need something that summarizes the differences between personal finance and business finance.
You're right, a summary is necessary. In the business world, though,
you are free to choose whatever depreciation scheme you want for your
financial statements. However, for tax purposes, the method is set. What this leads to is a difference between net income on the financial
statements and taxable income. This isn't a problem, it's actually
the norm. In fact, at least here in Canada (and probably every
country), there is a schedule on the corporate tax return that
reconciles the difference. On the personal tax return (for businesses
that aren't incorporated) there is no such schedule, but the
depreciation is calculated on it's own schedule and subtracted from
your business income schedule after net income - in other words you
don't enter on the tax return the depreciation that you entered into
GNU Cash anyway.
All right, I re-wrote the openning paragraph. Let me know what you think.
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/dep_value1.html
8) For the estimating depreciation, I was not sure if you wanted to remove the section at the beginning that starts with "A central issue ...". I think it is important that we mention some places you can go to to get estimations of valuation (blue book for cars, tax laws).
I had intended to remove it. I'll work these issues into the other sections. The blue book value belongs in the "personal" section, while the tax law part belongs in the "business" section.
Okay, I'll leave it in for now, and remove it when it exists somewhere else.
-- -**-*-*---*-*---*-*---*-----*-*-----*---*-*---*-----*-----*-*-----*--- Jon Lapham <[EMAIL PROTECTED]> Rio de Janeiro, Brasil Personal: http://www.jandr.org/ ***-*--*----*-------*------------*--------------------*---------------
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