When you invest in property (building, machinery, furniture, vehicle, etc.), the government doesn't let you "expense" it. Rather you have to put it into an asset account, cash / amt- property / amt+ , and depreciate it over it's "economic life" (which the government — not you — defines, and which they lengthen whenever they need a little more tax revenue — which is often).
Depreciation is a curse on small business — one that every small business suffers with. Government acts like your partner — after all, they are taking 50% of your profits (in taxes — city, state, federal). And for all the things they let you expense, they're picking up half the costs. But for things you have to depreciate, they shift the cost burden onto you. In the year you buy, say a building (30-year economic life), you pick up the full cost of that building — and they pick up 1/30!
And they'll argue that's "fair". They don't see themselves as your "partner". (Too bad, because if they did, we'd have a much more booming small business economy.) Instead, they look at your business simply as an economic entity. If they let you expense that building, it wouldn't show up on your Balance Sheet. The "book" value of your entity would drop by the price of the building, whereas the "real" value of the entity didn't drop at all — all you did was shift the money from your cash account into a building account — both asset accounts.
The answer, of course, is for the government to let you keep your books according to "accepted accounting standards" — but tax your property purchases on a cash basis. But, of course, that's too complicated — but the myriad, ever-changing depreciation schedules aren't?!
Anyway... One thing we've been able to count on (at least so far) is that they don't change depreciation schedules in mid-stream. Your depreciation schedule (i.e., the portion of your property purchases that you can expense each year) is established (and fixed) in the year of purchase. We know for our building, for example, that we can expense 1/30 of its purchase price each year for the next 30 years.
So we set up accounts for categories of properties that will be depreciated alike (at least this year) — buildings, building equipment, machinery & equipment, furniture & fixtures, vehicles, etc. At end of year, we compute a depreciation schedule for each category and expense what we're allowed, building-depreciation / amt– depreciation-expense / amt+ building-equipment-depreciation / amt– depreciation-expense / amt+ , etc. And we hold onto those schedules — in a Depreciation folder — so we know what to expense in subsequent years.
A problem comes about when we sell one of those properties. Let's say 5 years downstream, we sell that building. And let's say we sold it at the price we paid for it. But we've been depreciating it for 5 years — its present value on our books is only 25/30 of its purchase price. So we have a gain-on-sale of 5/30 of it's purchase price. That's revenue, cash / amt+ building / amt– building-depreciation / amt+ other-revenue / amt– .
And we can't take any more depreciation on it so we have to back it out of our depreciation schedule. Now that's do-able if we set up our categorized depreciation schedules well. But there's still lots of room for error and confusion — especially as you accumulate more property. Remember, "property" includes desks, chairs, benches, file cabinets, computer equipment, etc.
I recommend just biting the bullet and setting up a separate depreciation schedule for each individual property. And also annotating the schedule sheet with a (sequential) property number — and marking the actual property with that number. Store these sheets in folders, one folder per category. Then when you dispose of a piece of property, you only have to annotate that one schedule (and move the sheet to an "inactive" section of the folder). To compute depreciation for the year, you just go through the "active" section of the folder and total up all the amounts listed for the current year.
One possible format for these schedules is, <property-number> <physical-location> <purchase-date> <depreciation-method> <purchase-price> <description>, followed by the schedule, <year> <depreciation-expense>, <year> <depreciation-expense>, etc. <Depreciation-method> is just a shorthand description of the method used to compute the depreciation-expense numbers that follow, e.g., 30-year straight line (30sl), 5-year declining balance (5db), 7-year declining balance (7db), etc.
When you sell or dispose of a property, annotate the depreciation-expense line in the year of sale with the selling price (zero if scrapped) and cross-out all following depreciation-expense lines. This gives you all the data you need to compile a source document for your depreciation transactions — property schedule with prior and current year's depreciation, property added during the year, property disposed of during the year and gain-on-sale of disposed properties.
If you keep these schedules in a computer file, scripts or programs can calculate the depreciation-expense numbers (filling in that portion of the file), compile and print out your depreciation source document, compile a property schedule by physical location (e.g., for personal property tax backup), etc.
One final note — do you really have to depreciate all property? Even an old desk you bought for, say $25? No. The government lets you just expense property whose cost isn't "significant" — of course they don't define "significant" — hey, they gotta have some things to catch on audit. I used to use $300 — property costing less than $300, I'd expense — more than $300, I'd depreciate — and never had IRS audit problems with it. (Of course, I may have just been lucky.) Ask your tax preparer what number they'd feel comfortable defending.