Amortization Example for Prepaid Items

You can enter asset items in Deltek for prepaid items, such as general liability insurance, that will be amortized when you run Depreciation Processing in the Asset Management application.

The following is an example of a prepaid asset item tracked using the Equipment hub and depreciated in Depreciation Processing.

Company A purchases a 12-month general liability insurance policy for $3,600.

The following table describes the entries that you make in Deltek:

Step	Location	What You Must Complete
1.	Item Categories tab Settings > Purchasing & Inventory > Company	One-time setup: On the Item Categories tab, set up a purchasing item category to use only for prepaid items. This category lets you exclude prepaid items from asset item reports. You must enter a category type of Capital Items for the item category.
2.	Transaction Center > Transaction Entry (AP Vouchers)	Enter and post an accounts payable voucher for $3,600 for the insurance policy that automatically creates the prepaid asset item for the insurance policy in the Equipment hub. Select the Allow Asset Entries check box on the New File dialog box when you create a transaction file for the AP voucher. In the grid on the AP Vouchers form, the following entries specifically apply for creating the asset item: Select the Create Asset check box. In the Asset Type field, select an asset type. In the Item Number field, select the purchasing item that you set up in step 1 whose category type is Capital Items.
3.	Hubs > Equipment	In the Equipment hub, enter and review depreciation information for the prepaid insurance asset item.
3 a.	GL Cost tab in the Equipment Hub	The $3,600 cost of the prepaid insurance policy that you entered for the AP voucher prefills in a row in the Acquisition Cost grid on the GL Cost tab. Leave 100.00 in the Business Use Percentage field. Leave the Less Salvage Value field blank.
3 b.	GL Book tab in the Equipment Hub	Complete the information on the GL Book tab, including the following: In the Asset Status field, select Active. You cannot run depreciation processing for the prepaid item until it has an active status. In the Calculation field, select Prepaid. The Method field prefills with Straight-line, which you cannot change. The straight-line calculation is: Monthly Amortization Amount = (Prepaid Item Cost – Salvage Value) / Useful Life in Years Value Source Prepaid Item Cost Depreciation Basis field on the GL Cost tab Salvage Value Less Salvage Value field on the GL Cost tab Useful Life in Years Useful Life in Years field on the GL Book tab In the Useful Life in Years field, enter 1 if it has not prefilled with 1. In the GL Accounts section, general ledger accounts prefill in the Prepaid and Prepaid Expense fields, based on the asset type that you entered in the Asset Type field on the GL Book tab. You can change the accounts as needed. These are the accounts that will be used for the journal entries that are created when you process depreciation for your general ledger (GL Book). These do not apply for additional books entered on the Additional Books tab.
3 c.	Additional Books tab in the Equipment Hub	If you set up any additional books to calculate depreciation or amortization differently from your general ledger book, entries from the GL Book tab prefill on the Additional Books tab for additional books. Change the prefilled information as needed, and enter additional amounts to affect the amortization basis.
4.	Asset Management > Depreciation Processing	Run Depreciation Processing for your GL Book and additional books if you have them. GL Book When you run Depreciation Processing for your general ledger book, the follow journal entries are created for your general ledger: Account Debit Credit Prepaid Expense $300 Prepaid $300 Additional Books If you have additional books and run depreciation for them, you can see the amortization that is calculated for the prepaid general liability insurance asset items on a transaction posting log (although no journal entries are created for additional books), in Asset Review in the Asset Management application, and on the Asset Detail report, an Equipment report in the Reporting application.