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Create a spreadsheet that list 100% of \u00a0the following home office expenses for the year which most frequently includes the following: <\/p>\n
Rent <\/p>\n<\/li>\n
Condo fees <\/p>\n<\/li>\n
Interest portion of the mortgage payable <\/p>\n<\/li>\n
Utilties <\/p>\n<\/li>\n
Property and School Taxes <\/p>\n<\/li>\n
Insurance <\/p>\n<\/li>\n
Property maintenance (eg. cleaning lady or gardener) <\/p>\n<\/li>\n
Repairs to the property as a whole <\/p>\n<\/li>\n
Telephone <\/p>\n<\/li>\n
Internet <\/p>\n<\/li>\n<\/ol>\n
On the spreadsheet indicate the percentage of the home that relates to the home office portion only and multiply by the total amount above to get the home office expense for each category <\/p>\n
Set up each category above in the chart of accounts<\/a>\u00a0as an expense OR simply create one account called Home office expenses. The detail type of the expense in QBO can be Rental since this is the closest match. If you do set up each category as an expense, I recommend making them sub category of home office expenses for further clarity. <\/p>\n Debit<\/strong>: \u00a0Rent, Condo fees, Insurance etc. (each category on a separate line with the corresponding amount that relates to the home office. This can all be one journal entry.) <\/p>\n Credit:<\/strong> Shareholder Loan (the exact total of \u00a0home office expenses can then be paid out to the shareholder) <\/p>\n Sales tax can also be entered in a journal entry.\u00a0 For example telephone, internet and hydro all have sales tax.\u00a0 To do this determine the amount of home office expense per the formula above, but before<\/span> sales taxes.\u00a0 <\/p>\n When entering the journal entry, scroll to the right and find the sales tax column.\u00a0 Then select the code that applies to your province.\u00a0 This will allocate the sales tax to the sales tax report. <\/p>\n The video below shows you how to enter your home office expenses in QBO<\/a><\/p>\n Certain high value purchases of assets, that have a \u00a0useful life beyond one year, like computers<\/a>, printers, cell phones, furniture, photography equipment, machinery etc are recorded as capital assets (property, plant and equipment) on the balance sheet rather than expenses on the profit-loss.\u00a0 They are then depreciated over time using one of several methods.\u00a0 The method to calculate depreciation used by Revenue Canada (CRA) is the declining balance method.\u00a0 Each asset is assigned to a specific CCA (capital cost allowance) class <\/a>which has a pre-determined rate.\u00a0 For example computers and related purchases are Class 50 while furniture and photography equipment would be Class 8 with a 20% depreciation rate.\u00a0 <\/p>\n The depreciation calculation is based on the Undepreciated Capital Cost , which is the cost of the assets less any depreciation taken in prior years.\u00a0 In the first year, the half year rule is applied which means that only 50% of the depreciation is allowed.\u00a0 See an example of how CCA is calculated<\/a> <\/p>\n Note that other methods of depreciation<\/a> can be taken for financial statement purposes including straight line or units of production if this gives a more accurate view of the usage of the asset. <\/p>\n Set up an account for depreciation expense.\u00a0 You can either set up an account for each category of asset eg. depreciation computer equipment, depreciation furniture etc. OR you can set up one combined expense account. <\/p>\n QBO has this as an \u201cOther expense\u201d when scrolling through detail type, however, it might make more sense to show this an \u201cexpense\u201d since it is part of operating expenses. For detail type, you can use other general\/administrative expense <\/p>\n You would then create accounts for accumulated depreciation for each asset.\u00a0 This allows you to monitor the depreciated value of each asset.\u00a0 The accumulated depreciation asset account is a \u201ccontra\u201d account since it will always have a negative balance while assets are usually positive.\u00a0 The account in QBO would be created as a \u201cproperty, plant and equipment\u201d account where you would selected accumulated depreciation as the detail type.\u00a0 When naming the account it is common practice to call it accumulated depreciation (depn) \u2013 computer or furniture etc. depending on the category of asset to which it applies. <\/p>\n How To Calculate the Depreciation Expense Using the Capital Cost Allowance (CCA) Rate:<\/p>\n My blog post provides details and examples of how to calculate capital cost allowance<\/a><\/p>\n The journal entry for depreciation is simply: <\/p>\n Debit<\/strong>. Depreciation Expense <\/p>\n Credit.<\/strong> Accumulated Depreciation (for the specific asset that you are depreciating)<\/p>\n The tutorial below reviews the two most popular methods for calculating and depreciation, how to calculate depreciation and how to enter the journal entry in QBO<\/a>. I also review the impact on the financial statements. <\/p>\n<\/div>\nHow to Create a Journal Entry for Home Office Expenses<\/h3>\n
How to Record depreciation expense and Accumulated Depreciation:<\/strong> <\/h2>\n
How to Set Up Depreciation Expense in the Chart of Accounts<\/h3>\n
How to record the journal entry for Depreciation in QBO: <\/h3>\n