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    QuickBooks desktop screen showing fixed asset depreciation setup for small business accounting

    Table of Contents

    Introduction

    Properly setting up depreciation for fixed assets in QuickBooks is essential for accurate financial reporting and tax compliance. Depreciation helps spread the cost of a fixed asset over its useful life, reflecting its decreasing value over time. This guide provides a detailed, step-by-step process for setting up and recording depreciation of fixed assets in QuickBooks Desktop and QuickBooks Online.

    Understanding Depreciation of Fixed Assets

    Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life. Fixed assets, such as machinery, vehicles, and buildings, lose value over time, and depreciation accounts for this gradual reduction in value on your financial statements.

    Step 1: Set Up a Fixed Asset Account

    QuickBooks Desktop

    1. Open QuickBooks Desktop: Launch QuickBooks and log in with your credentials.
    2. Go to Chart of Accounts: Navigate to Lists > Chart of Accounts.
    3. Create a New Account: Click Account > New.
    4. Select Account Type: Choose Fixed Asset and click Continue.
    5. Enter Account Details: Name the account (e.g., “Office Equipment”), and enter any relevant details, such as the purchase date and asset value.
    6. Save the Account: Click Save & Close to add the fixed asset account to your Chart of Accounts.

    QuickBooks Online

  • Open QuickBooks Online: Log in to QuickBooks Online with your credentials.
  • Navigate to Chart of Accounts: Go to Accounting > Chart of Accounts.
  • Create a New Account: Click New.
  • Select Account Type: Choose Fixed Asset as the account type.
  • Enter Account Details: Name the account (e.g., “Vehicle”) and provide any necessary details.
  • Save the Account: Click Save and Close to add the fixed asset account to your Chart of Accounts.

    • Step 2: Record the Purchase of the Fixed Asset

    QuickBooks Desktop

  • Enter a Bill or Check: Record the purchase by entering a bill (Vendors > Enter Bills) or by writing a check (Banking > Write Checks).
  • Select the Fixed Asset Account: In the Account field, select the fixed asset account you created.
  • Enter Purchase Details: Fill in the purchase details, including the amount and vendor information.
  • Save the Transaction: Click Save & Close to record the purchase.

    • QuickBooks Online

  • Record the Expense: Click on + New > Expense or + New > Check.
  • Select the Fixed Asset Account: Choose the fixed asset account from the Category field.
  • Enter Purchase Details: Enter the purchase amount, vendor information, and any other relevant details.
  • Save the Transaction: Click Save and close to record the expense.

    • Step 3: Set Up a Depreciation Expense Account

    QuickBooks Desktop

  • Go to Chart of Accounts: Navigate to Lists > Chart of Accounts.
  • Create a New Account: Click Account > New.
  • Select Account Type: Choose Expense, then click Continue.
  • Name the Account: Enter a name like “Depreciation Expense.”
  • Save the Account: Click Save & Close to add the depreciation expense account.

    • QuickBooks Online

  • Navigate to Chart of Accounts: Go to Accounting > Chart of Accounts.
  • Create a New Account: Click New.
  • Select Account Type: Choose Expense as the account type.
  • Name the Account: Enter a name such as “Depreciation Expense.”
  • Save the Account: Click Save and Close to add the account.

    • Step 4: Record Depreciation Expense

    QuickBooks Desktop

  • Create a Journal Entry: Go to Company > Make General Journal Entries.
  • Debit Depreciation Expense: Debit the “Depreciation Expense” account for the amount of depreciation.
  • Credit Accumulated Depreciation: Credit the “Accumulated Depreciation” account associated with the fixed asset.
  • Enter Details: Provide a description of the entry, including the asset being depreciated and the period covered.
  • Save the Journal Entry: Click Save & Close to record the depreciation.

    • QuickBooks Online

  • Create a Journal Entry: Click on + New > Journal Entry.
  • Debit Depreciation Expense: Debit the “Depreciation Expense” account for the depreciation amount.
  • Credit Accumulated Depreciation: Credit the “Accumulated Depreciation” account associated with the fixed asset.
  • Enter Details: Add a description, including the asset and the depreciation period.
  • Save the Journal Entry: Click Save and close to record the depreciation.

    • Step 5: Review Depreciation Reports

    QuickBooks Desktop

  • Generate a Depreciation Report: Go to Reports > Accountant & Taxes > Depreciation Schedule.
  • Review the Report: Ensure that all fixed assets and corresponding depreciation expenses are accurately recorded.

    • QuickBooks Online

  • Run an Account QuickReport: Go to Accounting > Chart of Accounts, find the “Depreciation Expense” account, and select Run Report.
  • Review the Report: Verify that all depreciation entries are correct and complete.

    • Conclusion

    Setting up and recording depreciation for fixed assets in QuickBooks is vital for accurate financial reporting and compliance. By following these steps, you can ensure that your fixed assets and their depreciation are properly accounted for in both QuickBooks Desktop and QuickBooks Online. Regularly reviewing your depreciation entries and reports will help maintain the accuracy of your financial statements.

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