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How do I enter and record depreciation?

Depreciation is a business expense that represents the loss in value over time of fixed assets (assets which you normally would not convert to cash during a year of operation, such as equipment, vehicles, or furniture). For each depreciated fixed asset, you will need to calculate the amount of depreciation. You can use QuickBooks to record and track depreciation. The following procedures explain how to set up depreciation accounts and enter depreciation transactions.

Important: Determining the amount of depreciation to deduct can be a complex process. Please consult an accounting professional or a tax advisor for help in figuring actual depreciation amounts.

Creating the Appropriate Accounts Each fixed asset should have its own parent asset account in the chart of accounts, and two subaccounts: one for the original purchase price of the item, and the other for its accumulated depreciation. For example, a Company Vehicle parent account would have two subaccounts, perhaps named Purchase and Depreciation. You will also need a separate expense account to track all depreciation expenses.

To create a fixed asset account, do the following:

  1. From the QuickBooks Lists menu, choose Chart of Accounts .
  2. In the Chart of Accounts window, click Account , and then choose New .
  3. Select Fixed Asset. Click Continue.
  4. Enter an Account Name for the asset account (for example, Company Vehicle). Fill in all other applicable information. Click Save & New.
  5. Enter an Account Name (for example, Purchase).
  6. Select the Subaccount of checkbox, and then choose the parent account from the drop-down list.
  7. Click the Enter Opening Balance button. Enter purchase date in the as of date field. Click OK .
  8. Click Save & New.
  9. Enter an Account Name (for example, Depreciation).
  10. Select the Subaccount of checkbox, and then choose the parent account from the drop-down list.
  11. Click the Enter Opening Balance button. Enter the purchase date in the as of date field. Click OK .
  12. Click Save & New.
  13. Repeat steps 2 through 12 for each fixed asset.

To create a depreciation expense account, do the following:

  1. From the QuickBooks Lists menu, choose Chart of Accounts .
  2. In the Chart of Accounts window, click Account , and then choose New .
  3. Select Expense. Click Continue.
  4. Enter an Account Name (for example, Depreciation Expense) for this account.
  5. Click Save & Close.

Before the asset has been depreciated, its Depreciation subaccount and the Depreciation Expense account should have a zero balance. (Please note that the chart of accounts does not display expense account balances.)

Recording Depreciation

To show depreciation of an asset, do the following:

  1. From the QuickBooks Lists menu, choose Chart of Accounts .
  2. Double-click the asset's Depreciation subaccount to open the account register.
  3. Enter the appropriate date in the register's Date field.
  4. Enter the depreciation amount in the Decrease column.
  5. Select the appropriate depreciation expense account from the Account drop-down list. If desired, enter notes in the adjacent Memo field.
  6. Click the Record button to record the depreciation.

Repeat steps 3 through 6 for each depreciated fixed asset. Note: Depreciation entries can also be made using a journal entry by crediting the asset's depreciation subaccount and debiting the appropriate depreciation expense account.

After you have made a depreciation entry for a fixed asset, the chart of accounts will reflect the asset's new value in the parent asset account. At the end of the asset's lifetime, the parent asset's subaccounts will be equal, and the value of the parent asset account will be reduced to zero. Note: The balance in an asset account carries over from one year to the next. Expense accounts are reset to zero at the beginning of each new fiscal year.




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