Depreciation is the portion of a fixed asset’s cost recorded as an expense during the current accounting period. In simple terms, since a fixed asset has a useful life longer than one accounting period, depreciation represents the part of its value used up during the current period.
Depreciation can be calculated many ways. Straight-line depreciation is the simplest, dividing the fixed asset’s cost by the number of accounting periods it is expected to last. Other methods might yield greater depreciation in early accounting periods or take into account the salvage or scrap value of the fixed asset after it is fully depreciated. Tax regulations might also allow accelerated depreciation to encourage business investment or simplify filing.
To enter depreciation for a specific fixed asset, go to the Fixed Assets tab. Click on the blue figure in the
Accumulated depreciation column for that asset:
This will transfer you to the depreciation register for the selected fixed asset. Click the New Depreciation Entry button to enter the depreciation expense amount:
The Fixed Assets register now shows the depreciation amount and reduced book value:
Subsequent depreciation entries will add to the total of accumulated depreciation. A complete record of depreciation for the asset can be seen by clicking on the blue balance:
The Summary tab combines accumulated depreciation for all fixed assets. It displays Fixed assets, accumulated depreciation as a contra asset account (meaning the balance is normally negative). This control account is activated automatically when you enable the Fixed Assets tab: