Oil and Gas depletion question

[samingeorgia]

OK, let's say that I invested in an oil / gas well. I spent $ 120,000 on tangible costs that I will depreciate and $ 150,000 on intangible costs that I will amortize over five years.

Now I begin receiving checks for production. As a small producer, I can take percentage depletion allowance. The debit is to expense; where does the credit go?

[Joel]

I you are an independent producer and filing Sch C then the percent depletion goes on line 12 of Sch C.

[samingeorgia]

Right, I'm clear about the tax deductibility, but I'm asking from an accounting standpoint. Assuming I keep a double-entry ledger on the business, the debit is an expense, does the credit increase accumulated depreciation?

[taxxcpa]

OK, let's say that I invested in an oil / gas well. I spent $ 120,000 on tangible costs that I will depreciate and $ 150,000 on intangible costs that I will amortize over five years.

Now I begin receiving checks for production. As a small producer, I can take percentage depletion allowance. The debit is to expense; where does the credit go?

You would probably credit Accumulated Depletion just as you credit Accumulated Depreciation if it were depreciation.

The average small investor probably doesn't keep double-entry books and reports it on schedule C or schedule E with no book entry.

I have seen accounting records from back when 27½% depletion was allowed that showed negative assets due to depletion in excess of 100% of assets. This also caused a negative net worth. For Texas Franchise tax purposes, depletion in excess of the value of the mineral interest was not allowable.

[samingeorgia]

Actually, this is a partnership. I think I'll credit owners' capital....