I 'inherited' an accounting process whereby all of the capital assets were expensed--going back over 40 years. As you can imagine, the balance sheet looks rather anemic for our $1.3 million/year budget. Is there a way to establish the remaining old (and newer) capital assets on the balance sheet now (at least the major ones) and somehow reflect what would have been the accumulated depreciation, and then depreciate going forward in accordance to what would have been the original depreciation schedule? Or, some other way to address this to properly to get us closer to GAAP (without going back over the MANY years and restating all of the old financial reports).
I am grateful for any insights and/or tips on this situation!!
Carol
Related question-- How does PCP handle depreciation? Or is this all done separately and updated to PCP via JE's? (Perhaps this one should be a separate post.)
We have never depreciated assets over the past 20+ years. Therefore, our balance sheet had a lot of valuation that should have been fully depreciated. However, we recently had an outside audit. He basically took all of the older assets, applied a useful life to each, and produced a spreadsheet calculating accumulated depreciation for each of the fixed asset lines. We booked one journal entry to record that which cleaned up the balance sheet as many assets were fully depreciated. Since then, I gather the invoices related to depreciable assets annually, after we've shown the non-GAAP balance sheet to the congregation. I then book the assets to the balance sheet by debiting the asset and crediting equity, apply the proper accounting life to each, calculate the annual depreciation expense, and book that as a Year-End entry in PowerChurch. That way, I don't have to go through the trouble of trying to explain what a "non-cash" expense is, but our books are according to GAAP on an annual basis.
I set up a section of account numbers in the 8000 series with a level 2 title of GAAP AUDIT ADJUSTMENTS. Under that I set up accounts for Depreciation Expense, Vacation Accruals, etc. This is where I record any of these GAAP type expenses that don't relate to the operating budget. I hope this helps. It's not perfect but satisfied the auditor. If I can be of any further assistance, please email back.
Mike Nerney, Associate Pastor
Calvary Baptist Church, Bel Air, MD
So you suggest that Carol has an accountant or auditor look at what they have, and then suggest the adjustments needed? Always a good idea to get professional advice when it comes to this area of accounting. There are many pitfalls one can fall into, as can be seen in your and Carol's situations.
mikenerney wrote:We have never depreciated assets over the past 20+ years. Therefore, our balance sheet had a lot of valuation that should have been fully depreciated. However, we recently had an outside audit. He basically took all of the older assets, applied a useful life to each, and produced a spreadsheet calculating accumulated depreciation for each of the fixed asset lines. We booked one journal entry to record that which cleaned up the balance sheet as many assets were fully depreciated. Since then, I gather the invoices related to depreciable assets annually, after we've shown the non-GAAP balance sheet to the congregation. I then book the assets to the balance sheet by debiting the asset and crediting equity, apply the proper accounting life to each, calculate the annual depreciation expense, and book that as a Year-End entry in PowerChurch. That way, I don't have to go through the trouble of trying to explain what a "non-cash" expense is, but our books are according to GAAP on an annual basis.
I set up a section of account numbers in the 8000 series with a level 2 title of GAAP AUDIT ADJUSTMENTS. Under that I set up accounts for Depreciation Expense, Vacation Accruals, etc. This is where I record any of these GAAP type expenses that don't relate to the operating budget. I hope this helps. It's not perfect but satisfied the auditor. If I can be of any further assistance, please email back.
Many thanks for sharing this very helpful information, Mike! Lord bless you for taking the time to do so. ~Carol
As you can imagine, the balance sheet looks rather anemic for our $1.3 million/year budget. Is there a way to establish the remaining old (and newer) capital assets on the balance sheet now (at least the major ones) and somehow reflect what would have been the accumulated depreciation, and then depreciate going forward in accordance to what would have been the original depreciation schedule? Or, some other way to address this to properly to get us closer to GAAP (without going back over the MANY years and restating all of the old financial reports).
~Carol