Previous year deprecation expense issue.

[darkarbiter7]

Hi all,

Little bit of an issue. I am a bookkeeper fairly fresh out of college (first accounting job, actually) taking over for someone who has worked at the company for a few years. The previous bookkeeper made some erroneous adjusting entries for depreciation in 2012, and attempted to remedy them in 2013. Essentially, at the end of 2012, she made adjusting entries to our office equipment and building accounts to account for depreciation. Here's where the problem starts: In 2012, the adjusting entries she made credited accumulated depreciation and debited the fixed asset account (she made the same error on both office equipment and building depreciation), which is of course incorrect. She realized this, and at the beginning of 2013 she made entries that debited depreciation expense and credited the asset accounts of both the building and equipment.

The entries she made leaves our company with correct amounts for the asset accounts and the accumulated depreciation accounts, but it leaves our depreciation expense overstated in comparison to what we actually have on our depreciation schedule. What kind of entry would I have to make to resolve this issue? We have not yet closed the books on 2013, so we are hoping to remedy this before we close them. We are running Peachtree.

Thank you!

 

[bklynboy]

I don't quite follow the issue here. If the asset and accumulated depreciation are correct then depreciation expense should be OK over the life you have expensed. I think what you are saying is that the current year depreciation expense is off and this would make sense as you have adjusted the 2012 incorrect asset balance through the 2013 depreciation in the P&L. I imagine this was chosen so as not to restate prior year earnings. If you want 2013 depreciation expense correct you have no choice other than to restate 2012 so that the correction flows back to when the original error occurred.

 

[darkarbiter7]

Yeah, that is what I am trying to say.

What would the best way to go about making a journal entry to correct it?

 

[bklynboy]

You have 2 choices as noted above. Leave 2013 depreciation expense "incorrect" as it includes the correction to correct the asset/accumulated depreciation. I would go this route if its immaterial.

Or change the opening balance of retained earnings to offset the adjustment needed to get the 2013 depreciation expense correct. Not recommended unless its material enough to restate prior year financials.