Did you just get your depreciation schedule from your tax professional?
Are you ready to learn how to enter depreciation into QuickBooks?
In this video, I will share what depreciation is, and how to enter it into QuickBooks both for Desktop and Online users. š
Depreciation
- In accounting terms, depreciation is defined as the reduction of recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible.
Assets
- An example of fixed assets are buildings, furniture, office equipment, machinery, vehicles, etc.Ā
- Land is the only exception which cannot be depreciated as the value of land appreciates with time.
Rulesā¦
Depreciation allows a portion of the cost of a fixed asset to the revenue generated by the fixed asset.Ā
This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use.Ā
This helps in getting a complete picture of the revenue generation transaction.
GAAP:ā
In the United States, accountants must adhere to Generally Accepted Accounting Principles (GAAP) in calculating and reporting depreciation on financial statements.Ā
GAAP is a set of rules that includes the details, complexities, and legalities of business and corporate accounting.Ā
GAAP guidelines highlight several separate allowable methods of depreciation that accounting professionals may use.
IRS
The IRS has information about the depreciation and lifespan of assets.
https://www.irs.gov/publications/p946
Three main inputs are required to calculate depreciations:
- Useful life ā this is the time period over which the organization considers the fixed asset to be productive. Beyond its useful life, the fixed asset is no longer cost effective to continue the operation of the asset.
- Salvage value ā Post the useful life of the fixed asset, the company may consider selling it at a reduced amount. This is known as the salvage value of the asset.
- The cost of the asset ā this includes taxes, shipping, and preparation/setup expenses.
How the Different Methods of Depreciation Work
There are three methods for depreciation:
Straight Line
Declining Balance
Sum-of-the-Years’ DigitsĀ
Straight-Line Depreciation
Annual Depreciation expense =Ā
(Asset cost ā Salvage Value) / Useful life of the asset
($100,000-$2,000)/20.
$98,000/ 20 = $4,900
Use the following steps to calculate monthly straight-line depreciation:
Divide the annual by 12 = Monthly
- Subtract the assetās salvage value from its cost to determine the amount that can be depreciated
- Divide this amount by the number of years in the assetās useful lifespan
- Divide by 12 to tell you the monthly depreciation for the asset
An example of Depreciation (no Salvage Value)Ā
If a delivery truck is purchased for $100,000 and the expected usage of the truck is 5 years, the business might depreciate the asset under ādepreciation expenseā of $20,000 every year for a period of 5 years.
$20,000 x 5 yrs = $100,000
What vehicles qualify for the full section 179 deduction?
SUVs, trucks, vans, and other vehicles that donāt qualify as passenger vehicles arenāt subject to the IRS limits. You can take a full depreciation deduction each year. Using bonus depreciation and Section 179, you may be able to deduct all or most of the cost of such a vehicle in a single year.
Let’s Get Started with QuickBooks
What Is Accumulated Depreciation?
Accumulated depreciation is applicable to assets that are capitalized.
Capitalized assets are assets that provide value for more than one year. Accounting rules dictate that expenses and sales are matched in the period in which they are incurred.
Depreciation is a solution for this matching problem for capitalized assets. A portion of the cost of the asset in the year it is purchased and for the rest of the assetās useful life is considered a depreciation expense.
Accumulated depreciation is the total amount that the asset has been depreciated over the assetās life.
Start with Adding Your Assets:
Add Loan & Asset: Review QBS TrainingĀ
DR: Asset
CR: Cash or Loan
Add Accounts to Enter Depreciation in QuickBooks:
Add Account: Accumulated Depreciation
Type of Account: Fixed Asset – (Contra Account – Reduces Asset Value) either under each asset, type of assets, or only one account
Add Account: Depreciation Expense
Type of Account: Expense
Journal Entry
DR: Depreciation Expense
CR: Accumulated Depreciation – Reduces the Fixed Account Value
Timestamps:
0:00 – Intro
0:37 – Take your notes
0:44 – What is Depreciation?
1:14 – Assets
1:48 – Rules of Depreciation
2:14 – GAAP
2:26 – IRS Website
2:39 – Three main inputs are required to calculate depreciation
3:01 – Three methods for depreciation
3:15 – Straight-Line Method
4:07 – What vehicles qualify for the full section 179 deduction?
4:21 – What is Accumulated Depreciation?
4:51 – Capitalized Asset / Depreciation / Accumulated Depreciation
5:13 – Start with adding your Assets
5:25 – Add Accounts to enter Depreciation
6:04 – Set up Depreciation Accounts in QuickBooks Desktop
7:58 – Sample Chart of Accounts in QuickBooks Online
11:32 – Journal Entry in QuickBooks Desktop
12:47 – Checking your Reports in QuickBooks Desktop
14:39 – Set up Depreciation Accounts in QuickBooks Online
17:24 – Journal Entry in QuickBooks Online
19:07 – Checking your Reports in QuickBooks Online
21:10 – Final Thoughts
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Iād love to hear if this inspired an āaha momentā and if you are ready to start entering in your depreciation. š
Have an amazing day! š¤©
Yes, I enter depreciations.
Awesome Kristine!
Candus, Your explanations are very clear and you go the extra step in giving even more information.
Sheila,
Thank you! I’m glad this video helped you š
Candus
THANK YOU!! Just found your site and I am BOOKMARKING IT because this is the most helpful Quickbooks info I’ve ever found!
THANK YOU THANK YOU THANK YOU!
Hi Michelle,
I’m so glad you found us š¤
If you’re looking for more QuickBooks training, I’d recommend joining us on our next workshop.
You can save your seat here: http://canduskampfer.com/workshop
Have a great day!
Ireland
Team Candus
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Just viewing this. Thank you!
I have already entered the data from my accountant, but this was a āyes, I did it rightā moment and helped me to understand what I was doing and why (accountant doesnāt have time to tutor you on the whyās lol). Thanks Candus.
Thank you Denise
We appreciate it āØ
Glad that we are being able to help
Have an amazing day!
Ednalyn ~ Team Candus
Very useful video for me..
Thank you Syed
We appreciate it āØ
Glad that we are being able to help
Have an amazing day!
Ednalyn ~ Team Candus
Thanks
You’re welcome Gloria!
Have an amazing day!
Ednalyn ~ Team Candus