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. 😊
- 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.
- An example of fixed assets are buildings, furniture, office equipment, machinery, vehicles, etc.
- Land is the only exception which cannot be depreciated as the value of land appreciates with time.
Depreciation allows a portion of the cost of a fixed asset to the revenue generated by the fixed asset.
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.
This helps in getting a complete picture of the revenue generation transaction.
In the United States, accountants must adhere to Generally Accepted Accounting Principles (GAAP) in calculating and reporting depreciation on financial statements.
GAAP is a set of rules that includes the details, complexities, and legalities of business and corporate accounting.
GAAP guidelines highlight several separate allowable methods of depreciation that accounting professionals may use.
The IRS has information about the depreciation and lifespan of assets.
Three main inputs are required to calculate depreciations:
- Useful life – 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 – 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 – this includes taxes, shipping, and preparation/setup expenses.
How the Different Methods of Depreciation Work
There are three methods for depreciation:
Annual Depreciation expense =
(Asset cost – Salvage Value) / Useful life of the asset
$98,000/ 20 = $4,900
Use the following steps to calculate monthly straight-line depreciation:
Divide the annual by 12 = Monthly
- Subtract the asset’s salvage value from its cost to determine the amount that can be depreciated
- Divide this amount by the number of years in the asset’s useful lifespan
- Divide by 12 to tell you the monthly depreciation for the asset
An example of Depreciation (no Salvage Value)
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 “depreciation expense” 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 don’t qualify as passenger vehicles aren’t 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 asset’s useful life is considered a depreciation expense.
Accumulated depreciation is the total amount that the asset has been depreciated over the asset’s life.
Start with Adding Your Assets:
Add Loan & Asset: Review QBS Training
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
DR: Depreciation Expense
CR: Accumulated Depreciation – Reduces the Fixed Account Value
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
Have you been using QuickBooks for a while, but when you pull a report you just don’t understand what it’s saying?
Does the idea of going to see your tax professional sound a little stressful and maybe cause you to feel like you want to pull your hair out?
I would love for you to join me on my customizing QuickBooks workshop.
I’ll be sharing:
- The most efficient way to track your Income and Expenses.
- How to create accurate reports in order to view how your business is actually doing and stop second-guessing yourself.
- Where to get the data you need to make the best decisions to grow your business.
And the #1 SECRET to feeling Confident at your next tax appointment.
I’m excited to see you on the workshop!
I’d love to hear if this inspired an “aha moment” and if you are ready to start entering in your depreciation. 👇
Have an amazing day! 🤩