Wow, Chris, thanks for all the feedback. This is exactly what I was hoping for.
Chris Lyttle wrote:
On Thu, 2003-07-10 at 08:43, Jon Lapham wrote:
================================= assetloan_concepts1.html compare to:
This is the intro to the chapter. My only question to the list for this page is whether you think these 3 subjects belong in the same chapter (asset depreciation, asset appreciation, and loans). It seems to me that loans are a different animal? No?
Well, the title of the chapter does have 'loans' in it, I think that
even though you have renamed the chapter to 'Monitoring Assets and
Loans' (I'm not sure what 'monitoring' means in this context, it doesn't
seem to me to clearly state what the chapter is about) that it should
generally be a chapter about how to deal with 'things that affect the
value of what you own' and to me that's loans, interest, appreciation
and depreciation.
Except that a loan is (I imagine) a liability, not an asset. So, really, this is a chapter on the changing values of things you *own or owe*. Right?
Yeah, I do not like the title either. Hmmm, what was it called before... ah, here it is. "Chapter 8: Assets and Loans". The reason I changed the title was because by chapter 8 the users have already worked quite a lot with "Assets", so it didn't seem clear to me from the title what new territory this chapter dealt with. So, I stuck the word "monitoring" in front... to imply that the chapter is about the *changing values* of assets and loans. No, not very good is it?
Other ideas: Assets and Loans (the original) Asset Appreciation/Depreciation and Loans Handling Changing Values of Assets and Loans Changing Values of Assets and Loans Asset Depreciation, Capital Gains, and Loans
Ah, hell, maybe the original title is the best. Short and sweet.
BTW, I really think you should try to rewrite these rather than cutting and pasting them as is (if that's what you've done).
I put most of the original text in, and added some of my own. I wanted to make sure to begin without losing any of the original work. Now, I can go though and rewrite parts once I fully grok the concepts.
My comments on the text of this section are;
- A lot of the language used here is technical and vague, for example
'The prototypical example of a asset to which this is often applied is
an automobile.'
Ah, yes, this would be one of my gems. I'll rewrite this to be less technical. s/prototypical/often used/
and 'Usually asset appreciation is called Capital Gains,
and are typically not recognized until the asset is sold. At the instant
the asset is sold, the entire gain becomes income.'
This is pretty much directly from the 1.6 documentation.
It just occured to me what is the difference between asset appreciation and capital gains. Asset appreciation is the theoretical concept of the increasing value of an asset (ie: the price of a stock you own increases). Capital gains is the hard nosed *real* profit you made when selling the asset. The reason why people never really talk about asset appreciation is because asset appreciation is not taxed, while capital gains is. Correct?
Lets rewrite this intro:
Original: When an asset increases in value over time, it undergoes appreciation. Usually asset appreciation is called Capital Gains, and are typically not recognized until the asset is sold. At the instant the asset is sold, the entire gain becomes income. Governments tend to be quite interested in taxing capital gains in one manner or another. (As always, there are exceptions. If you hold a bond that pays all of its interest at maturity, tax authorities often require that you recognize interest each year, and refuse this to be treated as a capital gain. The phrases accrued interest, or imputed interest are often used to scare those who are sensitive to such things...)
Rewrite: Asset appreciation occurs when something you own increases in value over time. When you sell this asset for more than you paid, the difference is known as "capital gains". An example of an asset from which you could receive capital gains is a stock. The accounting methods for handling asset appreciation differs somewhat from depreciation because usually you are only concerned with the moment you sell the asset and receive capital gains (as opposed to the continuous nature of tracking depreciation). Governments tend to be quite interested in taxing capital gains in one manner or another. (As always, there are exceptions. If you hold a bond that pays all of its interest at maturity, tax authorities often require that you recognize interest each year, and refuse this to be treated as a capital gain.)
better?
Try to approach this as a user who doesn't understand accounting concepts such as asset appreciation and explain in relatively simple terms what a concept means when it must be used. Really the people who understand accounting are not going to spend much time in the tutorial, they'll basically be looking for 'how do I do this' type help. Also try to avoid big words like 'prototypical' no one really knows what they mean (I had to look it up) and using simpler words gets your meaning across far better. The above sentence would easily get its meaning across without that word.
okay.
================================= asset_dep1.html
This is the section on asset depreciation. My questions for the list here is in section "8.2.3 Handling Depreciation in GnuCash". This is directly copied from the 1.6 documentation, and it mentions that you need 3 accounts: "Asset Cost", "Accumulated Depreciation", and a "Depreciation Expense" account. I do not understand what the Accumulated Depreciation account does. It does not appear in the example. Ideas?
Also, if you have multiple assets you want to track, obviously you need multiple "Asset Cost" accounts. But, can they share the same depreciation expenses account, or should they each have their own depreciation expense accounts?
I like the way you have set out this chapter, it clearly define's at the
beginning what depreciation is and why you would use it, then goes on to
give concrete examples in section 8.2.2 on different schemes for
depreciation. I think, though, in section 8.2.3 you didn't depreciate
your asset correctly. Looking at my accountant's financial reports, he
includes depreciation as an _asset_ in the balance sheet which is in the
negative to offset the value of the asset.
So, in other words, you have 2 asset accounts. One is the asset with the value fixed at the purchase price (and never changes value), and a second with an increasing-with-time negative value to reflect the depreciation.
Something like this:
-Assets + $300 -Computer + $1500 <- the "asset cost" account -Computer depr - $1200 <- the "accumulated depreciation" account -Expenses -Depreciation + $1200 <- the "depreciation expense" account
For me, it seems that the "depreciation expense" account is always equal (but opposite sign) to the "accumulated depreciation" account... in this simple example anyway.
If I'm correct about this (I may be wrong) Asset Cost would have the initial value and the depreciation would be put into the Accumulated Depreciation. The Depreciation Expense account would be used for expenses such as repairs on your car that increase its value (slightly) and therefore change its depreciation schedule. For example, if I buy a car it starts to depreciate the day I buy it. If I then go out and spend $$$ putting chrome wheels and a turbocharged engine in it this is an expense I pay out that increases it's resale value but the car in general will keep depreciating so the expense is 'periodic'.
Ugh, this is a bit more complicated... Maybe in this first example we should assume that there are no "upgrades" to the depreciating asset. I could make a second example which contains this extra complication.
You need an expense account to double-entrify the accumulated depreciation account, no? So, I figured that the Expenses:Depreciation account would be for that.
Chris-
let's get this depreciation stuff ironed out before dealing with the capital gains issues. I'll respond to the rest of your email later.
Thanks a million! -Jon
-- -**-*-*---*-*---*-*---*-----*-*-----*---*-*---*-----*-----*-*-----*--- Jon Lapham <[EMAIL PROTECTED]> Rio de Janeiro, Brasil Work: Extracta Mol�culas Naturais SA http://www.extracta.com.br/ Web: http://www.jandr.org/ ***-*--*----*-------*------------*--------------------*---------------
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