How to Record Depreciation in QuickBooks Online/Desktop – Learn the Process

Depreciation is a crucial component of Quickbooks because it enables companies to record the gradual decline in asset value appropriately, which affects tax reporting and financial statements. Keeping accurate and current financial records can be achieved by understanding how to record depreciation in QuickBooks. All you have to do is enter data such as the asset’s cost, residual or salvage value, depreciation method, and life. Entering these numbers will result in an easy-to-understand calculation.

What Are the Different Methods of Depreciation in Quickbooks?

There are different methods of calculation and financial repercussions when recording Depreciation in QuickBooks. Quickbooks has multiple depreciation strategies, such as:

1. Straight-line

In Quickbooks, straight-line depreciation offers a consistent and uncomplicated method of asset devaluation by allocating an identical percentage of an asset’s cost as depreciation expense each accounting period. Straight-line Depreciation is computed by taking into account the asset’s initial cost, residual value, and usable life. The annual depreciation formula is calculated as follows: (Cost of asset – Residual value) / Useful life. This allocation strategy is appropriate for assets with steady and predictable consumption since it equally distributes the asset’s cost throughout its useful life. 

2. Declining balance

In Quickbooks, declining balance depreciation reflects an accelerated asset devaluation strategy by initially applying a larger depreciation rate to an asset’s book value and then progressively decreasing the depreciation allocation in later quarters. This approach is best suited for assets with higher initial production and utility because it speeds up the write-down of the asset’s value. The depreciation rate is applied to the asset’s book value at the start of each period using Quickbooks’ calculating technique, which leads to a decreasing depreciation expense over time. 

3. Sum-of-the-years digits

The Sum-of-the-years digits approach results in larger depreciation charges in the early years and reduced charges in the later years, in line with the notion of matching expenses to revenues over an asset’s useful life. Users can apply this strategy with ease using Quickbooks, which gives an accurate picture of an asset’s declining worth over time. Businesses can improve the accuracy and transparency of their financial reports by better aligning their financial statements with the actual wear and tear of their assets by including the sum-of-the-years’ digits depreciation.

4. Units-of-production

Units-of-production depreciation in Quickbooks offers a dynamic and activity-based approach to asset devaluation by distributing depreciation charges according to an asset’s utilization or production output. By matching the asset’s operating costs to its revenue, this approach enables organizations to reflect an asset’s declining assets over time more accurately. When calculating depreciation using this method, Quickbooks multiplies the asset’s cost by the anticipated number of units produced or hours of use. 

How do you choose the right depreciation method in QuickBooks?

In order to choose the best depreciation technique for accurate asset valuation in Quickbooks, it is necessary to consider a number of aspects, including asset categories, useful life estimates, and financial reporting goals.

This choice affects cash flow, tax consequences, and financial statements; hence, it’s important to take into account different depreciation techniques like:

• Straight-line
• Double-declining balance
• Units of production
• Sum-of-the-years’-digits

The profitability and tax obligations of the business are impacted by how depreciation charges are allocated, which varies according to the technique used. To guarantee accurate reporting and transparent financial statements for stakeholders and regulatory agencies, it is crucial to match the selected approach with the nature of the assets, industry standards, and regulatory compliance.

How to record Depreciation in QuickBooks Online?

Step 1: Create a depreciation account

If you already have an account, then don’t create one; otherwise, follow the steps below:

1. Click on Settings and select the Chart of Accounts.
2. Click on New.
3. Add the name of the description account in the Account name field.
4. Choose Other Expenses in the drop-down from the Account type field.
5. From the Detail type field, choose Depreciation from the dropdown.
6. Select Save.

In case you are not sure about the depreciation account, kindly follow the below-mentioned steps to check the same:

1. Click on Settings.
2. Choose the Chart of Accounts.
3. Enter the “depreciation” in the “Filter by name” field.
4. If you can locate the account with “Depreciation” in the Name column, “Depreciation” in the Detail Type column and “Other Expense” in the Type column, then your chart of accounts exists.
5. Now, follow the ( Step 2: Record the Depreciation).

Step 2:  Record the Depreciation

1. Choose + new.
2. Select Journal entry.
3. In the first line, choose the asset account that you use to track the loan from the Account dropdown.
4. Put the depreciated amount in the Credits column.
5. Now, choose the depreciation account you created from the Account dropdown.
6. Put the same depreciated amount in the Debits column.
7. Select Save.

How do you enable automatic depreciation calculations?

When automated Depreciation is enabled, QuickBooks creates a monthly or yearly journal entry that credits accumulated depreciation and debits depreciation expenses. The depreciation expense affects your income statement, lowering net income. 

The balance of the Depreciation recorded over the asset’s life is represented by the offsetting accumulated depreciation account, which may be found on your balance sheet.

You can enable the automatic depreciation calculations if you follow the below-mentioned steps:

1. Go to the Gear icon, click on the Accounting option, and then click on Fixed Asset Manager.
2. Select the name of the asset.
3. Choose the depreciation method.
4. Put the useful life and salvage value.
5. Check the “Automatically calculator depreciation”.

How to record depreciation in QuickBooks Desktop?

In order to record depreciation, you must have a depreciation expense account (if you don’t have one, first create that, read under the heading above “Step 1: Create a depreciation account “), then follow the below-mentioned steps:

1. Go to + New.
2. Choose Expense.
3. Choose Other Expenses under the Category Details.
4. Then, put the depreciation amount in the Amount column.
5. Now, choose the asset account that you are depreciating and then put the same amount in the Amount column.
6. Click on Save and close.

How to set up fixed assets to track Depreciation in QuickBooks Desktop?

1. For Windows users: 

Follow the below-mentioned steps to record the depreciation expense in QuickBooks Desktop (Windows):

1. Click on the “Lists” menu.
2. Now, click on the “Chart of Accounts” option.
3. Double-click on the sub-accounts that help track the accumulated Depreciation of the asset that is to be depreciated.
4. Put the depreciation amount when creating a transaction.
5. Click on the “Account”.
6. Fill in the expense account that is used to track Depreciation.
7. Click on Save to finish.

2. For Mac users:

In order to record the depreciation expense in QuickBooks Desktop (Mac), kindly follow the steps below:

1. Click on the “Lists” menu.
2. Then, click on the “Chart of Accounts” option.
3. Select the sub-account that is used to track the accumulated Depreciation.
4. Click on the “Use Register” from the drop-down menu of “Action”.
5. Put the depreciation amount in the register as a decrease.
6. Click on the Account field.
7. Fill out the expense account to set up the account that will be used to track the Depreciation.

How do you track depreciation in QuickBooks?

Tracking the depreciation is as important as recording the depreciation in QuickBooks. Here are the steps on how to track the depreciation and accumulated depreciation in QuickBooks:

1. Make a fixed account for all the assets ( or a group of assets) you want to depreciate. The account will represent a single asset or a group of assets.
   • Choose the account type as “Fixed Account”.
   • Label each account with the asset name which you are going to track.
   • Keep the opening balance at 0.00.
2. Now add two sub-accounts to each asset account you have created. One will track the cost of the asset, and the other will track the accumulated Depreciation.
   • Each main account must have two sub-accounts.
   • You can name the first account “Cost” and the second account “Accumulated Depreciation.” This will help you to distinguish the account in your Chart of Accounts.
   • Put the original cost of the asset in the Opening Balance field for the Cost sub-account. Put the date on which you have purchased the asset in the “AS OF” field.
   • Put 0.00 as the opening balance for the Accumulated Depreciation sub-account in case the asset has been acquired after your QuickBooks start date. If you have acquired the asset before the start date, then put the accumulated Depreciation of the asset in the “AS OF” the start date. You have to put the amount as a negative number in the field.
3. Now, create an expense account to track the depreciation expense. You can name the account “Depreciation Expense.”
4. Click on Go.
5. Choose the Chart of Accounts.
6. Now, choose the sub-account that tracks the accumulated Depreciation for the asset you are depreciating.
7. Choose Use Register from the Action pop-up menu.
8. Put the transaction in the bottom of the register:
   1. Put the depreciation amount as a decrease in the register.
   2. Put the expense account you have set up to track the Depreciation in the Account field.

Note: The depreciation amount gets subtracted from the current value of the asset under the main fixed asset account. Under the account that tracks the Depreciation, QuickBooks puts the depreciation amount as an increase to the company's depreciation expense.

Conclusion

To ensure that every fixed asset is properly set up in QuickBooks, make sure to include the cost, projected useful life, date of acquisition, and depreciation method. This guarantees precise tracking and computations. Although depreciation can appear difficult, tracking your fixed assets and doing automatic depreciation calculations is made simple with QuickBooks. Setting up the proper depreciation method can help QuickBooks users maintain organized books and save money on their taxes. It is a necessary procedure for any company that uses a lot of assets.