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Has any one booked depreciation estimates or booked depreciation a month in arears to speed up the close process?

True Up AccountingI'm looking into ways of shortening our close process and one of the items on the list is depreciation. Has anyone booked depreciation estimates or reconciled the Sub-Ledger to GL a month in arreas?

It is typically the follow up to get approval request forms that holds back our process and I generally believe the estimate to actual would be immaterial on a consolidated basis if this policy was adopted.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Question: Do you purchase that many capital items that you deprecation really changes month to month?

Because if it doesn't, than you have your yearly depreciation tables and you could always book them out. Any changes could be an additional booking.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Proformative has over 100 discussions about various aspects of accounting for depreciation.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

I agree with Wayne, regarding the capital purchases. Affecting the numbers would also be disposals. If the company has a lot of assets it is getting ready to dispose of, or high dollar value being disposed, this could affect the numbers depending on how large the company's balance sheet is.

From a personal-professional standpoint, I unfortunately have to wait every month until any and all purchases are recorded because my Controller wants the print outs from our fixed asset system to match exactly for each asset and accumulated accounts. I have attempted to get this changed.

So if your Controller or CFO demands to see the numbers match exactly to the fixed asset sub ledger, you are at the mercy of the A/P staff, as well as department purchasing the asset.

You are correct in that estimates would be immaterial to the actual results, overall. The only time this would be inaccurate is if the IT department went on a spending spree with large purchases, or the marketing/production (depending on industry) departments decided to stop providing company autos to employees, then sold the fleet of autos that were not fully depreciated.

Sheila Saffold
Title: Manager of Accounting
Company: Hospital
(Manager of Accounting, Hospital) |

We are using a hybrid method that the gets the entry in quicker while maintaining an acceptable level of accuracy. We use the Sage fixed asset accounting software.

We run the depreciation calculation based on activity through the end of the prior month. Next, we estimate one month's depreciation on new additions, and add that amount to the calculated depreciation. The total is booked. After close is over, we go through the process of updating the software and reconciliation spreadsheets for the additions. We re-run the depreciation calculation, see how close we were, and record an adjusting JE for any difference.

Clearly, this process works well because we have a small number of additions and rare disposals. The time savings has been important since our staff recently shrank from 4 senior accountants to three.

I hope this helps.

Anonymous
(Accounting Manager) |

@ Sheila What you are describing is what I would like to do. Our CFO is fully supportive of using estimates for depreciation and our large materiality gives us room for these estimates. We would have to have an extremely large spending spree in a single month to throw off our estimates to actuals each month.

@ Wayne, we do purchase quite a few assets, but my Company is fairly large and our materiality level is to the point where going off the prior month depreciation or estimating additions to increase the depreciation estimate monthly would create an immaterial difference between estimated vs. actual. Our fixed asset balance is over $200 million and our fixed assets have growth 7% year over year as of July. We would have to add over $4 million in assets in a single month to have a difference between prior month and actuals to have a sizable difference from a materiality standpoint and we can estimate the disposal and addition rate as we have many years of information to base these estimates to maintain better accurancy.

I think in our case, we would run the estimate vs. actuals each month to compare the difference to see if the estimate needs to be revised or trued up. Might be able to do it on a quarterly basis.

I'm also curious how this works with the balance sheet reconciliation. So you would just have a reconciling difference of the estimate at month end when reconciling to the Sub-Ledge vs. GL. Do you true everything up at year-end?

Michael Davidson
Title: Founder & Principal
Company: Business Recovery & Revival Services, LL..
(Founder & Principal, Business Recovery & Revival Services, LLC) |

I've done it similar to others but with a little different twist. We take the estimated depreciation for the entire year out of the system and create a “standard” monthly entry. I’ve then had that entry booked in advance for the entire year (or quarter or next month, whatever you like). This fixes depreciation expense prior to the month close. Unless it’s material, changes are not booked, and the standard entry is trued up each quarter/month, or the subsequent quarter/month if the change is not material, so as not to slow down the close. (Given that it’s a non cash entry, it doesn’t affect cash flow anyway.) Additions, deletions and other changes to the standard entry can be booked either as a supplement, or the standard can be re-calculated, the new one booked and the old reversed. Or, you can book additions and deletions as they occur, if material, or the following period if not. Then at year-end when there is more time you can true up the accounts exactly to the fixed asset system.

Joe Szczepaniak
Title: Controller
Company: Block and Company
(Controller, Block and Company) |

We use the 1/2 year 1st year method so I like to take the depreciation based on assets in service at the start of the year, add depreciation for expected additions (typically budget) and spread that evenly throughout the year. That way depreciation remains constant for the first 5 or 6 months. Then we review/update the capital plans and adjust the second half of the year. Of course, if there are any significant changes in capital spending or disposals (of assets with a net book value), you should analyze the impact and make the appropriate adjustments.

Ken Mason
Title: Controller
Company: Pascua Yaqui Tribe
LinkedIn Profile
(Controller, Pascua Yaqui Tribe) |

In the Knight-Ridder organization we budgeted and estimated depreciation for the year based on the method that Joe uses. Capital budgeting was done with considerable rigor and yielded a very solid 1/2 year estimated depreciation. True-up to actual occurred during year-end close and variances from budget, although sometimes significant, were not material in the greater scheme of things.

I operated quite differently in the non-profit world, where we used FAS. Each monthly close included actual depreciation based on the sub-ledger, with depreciation on additions beginning the month after they were placed into service so as not to delay the close.

In both scenarios all additions were booked to CIP, added to the sub-ledger (and transferred to "live" asset accounts) only after determination that they had been placed into service. CIP was analyzed monthly but not during month-end close. Corporate, Board and auditors were all well content with this practice, provided we were consistent.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Actually Ken said the magic words "provided we were consistent". As long as at some time during the year (year-end) you true up depreciation, I see no reason to fret.

An audited company, make it a footnote to the financials (referring to interim statements).

Bob Fecowicz
Title: Finance Manager
Company: Databricks, Inc.
(Finance Manager, Databricks, Inc.) |

We start depreciation in the month following acquisition, so our depreciation entry can be recorded and when the additions are added, they will start their depreciation in the following month.

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