Over the years I've worked with several companies that record an accumulated amortization account. While under US GAAP amortization is supposed to reduce the asset, internally the companies accumulated it in a contra-account similar to depreciation. I wanted to ask the group for their opinion on how prevalent this practice is and whether they agree or disagree with this type of
Is recording accumulated amortization standard?
Answers
Anon,
I have a strong preference for the accumulation account as it corresponds to the records regarding the amort, so it makes it much easier to audit.
Presentation-wise, it is preferable to show the net amount, but I like to keep the data separate.
KP
There are two benefits to this approach:
a) It is easier to audit - you can quickly determine if there has been an increase during the period or not by comparing to the prior period.
b) Helps with U.S. GAAP disclosures within the financial statement notes that requires the disclosure of gross amounts.
Your GL accounts will be mapped to your financial reporting formats as you need them to be for whatever accounting standards you follow.
You need the Accumulated account for reconciliation. If you put assets in a fixed asset system, the system will produce the accumulated depreciation/amortization and you may think that all you need is the subledger. However the moment you are asked to produce a rollfoward or other analysis you will find that you will need those Accumulated accounts.
When in doubt, use the accounts. The alternative is to hire me at a high rate to clean up your books.
Proper process does not compound transactions.
After cleaning up several large asset systems and re-designing data installs, I can promise you it will cost you 5 times to clean it up versus just doing it the way it is intended in the first place. And usually its about $5M.
It's the only way I've ever seen it done, so I suppose I took this for granted. Good responses from all.
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Accounting