How to record depreciation in QuickBooks Online?

How to Record Depreciation in QuickBooks Online?

Depreciation is an essential accounting process that helps businesses allocate the cost of assets over their useful life. QuickBooks Online provides a straightforward method for recording depreciation accurately. In this article, we will guide you through the steps to record depreciation in QuickBooks Online, ensuring your financial records remain up-to-date and compliant.

Step 1: Set up your depreciation account
Before recording depreciation, it is crucial to set up a depreciation account in QuickBooks Online. This account will enable you to track the depreciation expense separately and maintain accurate records. To set up the depreciation account, follow these steps:

1. Log in to your QuickBooks Online account.
2. Go to the “Chart of Accounts” under the “Accounting” tab.
3. Click on the “New” button to create a new account.
4. Select “Expense” as the account type.
5. Under the “Detail Type” drop-down menu, choose “Depreciation Expense.”
6. Assign a suitable name to the account, such as “Accumulated Depreciation.”
7. Save the changes.

Step 2: Record the asset purchase
To record depreciation accurately, you must first record the purchase of the asset in QuickBooks Online. This step is necessary to establish the asset’s cost basis and determine its useful life. Here’s how to record the asset purchase:

1. From the QuickBooks Online homepage, click on the “+” icon.
2. Select “Expense” from the options.
3. Enter the necessary details, such as the vendor, date, and payment method.
4. Under “Category,” choose the appropriate asset account, such as “Furniture and Fixtures.”
5. Input the purchase amount in the “Amount” field.
6. Save the transaction.

Step 3: Set up a depreciation schedule
To accurately calculate and record depreciation, you need to set up a depreciation schedule. This schedule will help you determine the amounts to be recorded as depreciation expense each accounting period. Follow these steps to set up a depreciation schedule:

1. Install a depreciation calculator app from the QuickBooks Online App Store to simplify the process.
2. Enter the asset details, such as purchase date, cost, useful life, and depreciation method.
3. Generate the depreciation schedule, which will provide clear instructions on how to allocate the depreciation expense over time.

Step 4: Record depreciation expense
Once you have your depreciation schedule in place, it’s time to start recording depreciation expenses in QuickBooks Online. Here’s how to record depreciation using the information from your depreciation schedule:

1. Go to the “+” sign on the home page and select “Expense.”
2. Enter the date and choose the appropriate asset account from the “Category” field.
3. Input the amount from your depreciation schedule in the “Amount” field.
4. In the “Memo” field, provide a brief description, such as “Monthly depreciation expense for XYZ asset.”
5. Save the expense.

Frequently Asked Questions:

1. How do I change the useful life of an asset in QuickBooks Online?

To change the useful life of an asset, go to the Chart of Accounts, locate the asset account, click on “Edit,” and update the useful life field.

2. Can I record depreciation on assets that I don’t own?

No, you can only record depreciation on assets owned by your business.

3. What happens if I make a mistake in recording depreciation?

If you make a mistake, you can easily correct it by going to the Transaction List in QuickBooks Online, finding the erroneous entry, and editing or deleting it.

4. Can I apply different depreciation methods to different assets?

Yes, QuickBooks Online allows you to assign different depreciation methods to each asset. Simply adjust the depreciation method when setting up the asset in your depreciation calculator.

5. How do I record depreciation on an asset that I’ve fully depreciated?

Once an asset has been fully depreciated, you should change its asset account type to “Accumulated Depreciation” and record the final depreciation expense as $0.

6. Is it possible to record depreciation for tax purposes differently from accounting purposes?

Yes, businesses often use different depreciation methods for tax and accounting purposes. However, it is essential to consult with a tax professional to ensure compliance with tax regulations.

7. Can I automate the depreciation recording process in QuickBooks Online?

While QuickBooks Online offers various automation features, recording depreciation is not automated. You need to generate and enter the depreciation expenses manually based on your depreciation schedule.

8. What is the difference between straight-line depreciation and accelerated depreciation?

Straight-line depreciation spreads the cost of an asset equally over its useful life, while accelerated depreciation methods allocate more depreciation expense in the early years of an asset.

9. Can I record depreciation on intangible assets?

Yes, you can record depreciation on certain intangible assets with identifiable useful lives, such as patents or copyrights. Ensure you consult with an accountant to determine the appropriate method and useful life.

10. Can I run depreciation reports in QuickBooks Online?

Yes, you can generate depreciation reports in QuickBooks Online. Go to the Reports tab, search for “depreciation,” and select the relevant report based on your requirements.

11. How often should I record depreciation in QuickBooks Online?

Most businesses record depreciation on a monthly basis, but it can also be recorded quarterly or annually, depending on your accounting practices and preferences.

12. Is recording depreciation mandatory for small businesses?

While recording depreciation is not mandatory for small businesses, it is highly recommended. Properly recording depreciation helps accurately reflect the value of your assets and maintain compliance with accounting principles.

Dive into the world of luxury with this video!