Track depreciation in QuickBooks Online is an important part of keeping accurate financial records especially if your business owns equipment, vehicles and other long term assets. Depreciation helps you increase the cost of those assets over the years you use them. It gives you a clear picture of your expenses and overall financial health. If you are using QuickBooks Online then you may notice that it does not automatically calculate depreciation for you. But the good news is that you can record and track it. In this blog, we’ll discuss depreciation, record fixed assets and how to track and review depreciation reports in detail.
What Depreciation Means in QuickBooks Online?
Depreciation is a way of increasing the cost of a business asset over the time you use it. When you buy something like a computer, vehicle and equipment for your business then you do not count the entire cost as an expense the day you buy it. Instead, you record a small part of the cost each year that reflects how the asset loses value over time. In QuickBooks Online, depreciation helps you to keep your books accurate.
It is show the true value of your assets on your balance sheet report and also tracks how much you have used up or spent on them as expenses in your profit and loss report. QuickBooks does not calculate depreciation automatically, so you need to manually enter it as a journal entry and use recurring entries to track it over time.
Can QuickBooks Online Track Depreciation Automatically?
QBO does not automatically calculate depreciation for your business assets. That means if you buy a computer, vehicle or any equipment then QuickBooks did not spread the cost over time by itself. You need to record the depreciation manually. You can easily do this by creating a depreciation expense account and accumulated depreciation account then make a journal entry each month or year to track how much value the asset loses.
While QuickBooks Online advanced offers a fixed asset manager that can make depreciation tracking easy but most users on the regular version will need to enter depreciation manually.
Set Up Accounts for Track Depreciation in QuickBooks Online
Before you track depreciation in QuickBooks Online, you should need to set up a few accounts. Here we explain the accounts which you need to set up, mentioned below.
- Fixed Asset Account: Here you record the original purchase price of your asset like computer, vehicles and equipment.
- Accumulated Depreciation Account: This is a contra-asset account that keeps track of how much depreciation you have recorded over time.
- Depreciation Expense Account: This account shows how much depreciation you are recorded as expense in your profit and loss report.
How to Create These Accounts in QBO?
- Go to the “Setting” then select Chat of Account and click on New.
- Choose the right accounting type such as Fixed Asset for the asset and accumulated depreciation, Expense for depreciation expense.
- After that give each account a clear descriptive name and click Save.
Record Your Fixed Assets in QuickBooks Online
To track depreciation in QuickBooks Online, first you need to record your fixed assets. Fixed assets are items your business owns and uses for a long time. Here we guide you how to record them.
- In QuickBooks Online, click Settings then go to Chart of Account and click New.
- For setting up a fixed account enter details like Account type, Details type, name and description.
- Then enter the purchase price of the asset, taxes, shipping and installation fees.
- Click save and close, if all details are entered.
Calculate Depreciation
To track depreciation in QuickBooks Online, you first need to calculate how much depreciation to record. Here is an explanation of how to calculate depreciation, mentioned below.
Step 1: Determine the asset cost including purchase price plus any costs for taxes, delivery, or installation.
Step 2: Now decide how many years you expect to use the asset. For example, a computer might last 5 years, while a delivery van might last 7 years.
Step 3: Decide on salvage value to sell the asset for at the end of its life. If you expect to sell your asset for $500 after 5 years, that’s your salvage value.
Step 4: Apply this Formula- Depreciation Expense = (Asset Cost – Salvage Value) ÷ Useful Life.
For example: You buy a computer for $2,000, expect to use it for 5 years, and it has a $200 salvage value.
($2,000 – $200) ÷ 5 = $360 per year.
Step 5: Now you need to decide the frequency such as monthly or yearly in QuickBooks Online.
Record Depreciation via Journal Entry (Standard QBO Users)
If you are using the regular version of QuickBooks Online, you’ll need to record depreciation manually using a journal entry. Here is an explanation of how to record depreciation via journal entry mentioned below.
- In QuickBooks Online, Click + New then Journal Entry.
- Use the end of the month or end of the year for your depreciation entry.
- Then add Accounts such as Debit for Depreciation Expenses account to increase your expense on the profit or loss report and Credit for Accumulated Depreciation account to reduce the asset’s value on the Balance Sheet.
- Add Memo to write something like “Monthly depreciation for office computer” to keep track.
- Then save your journal entry and close it.
Using QuickBooks Online Advanced: Automatic Depreciation
If you use QuickBooks Online Advanced, track depreciation becomes much easier because the system can help automate some of the process. Here we explain how QBO advanced automatic this process, mentioned below.
Set Up Your Fixed Assets
In QBO advanced, enter each asset’s cost, purchase date, useful life, and salvage value into the Fixed Asset Manager.
Choose a Depreciation Method
QuickBooks supports common methods like straight line depreciation. So you can select the method that matches your accounting needs.
Automatic Calculations
This system will calculate the depreciation expense for each period and create the corresponding journal entries automatically.
Review and Approve
You can review the generated journal entries before post them to ensure your financial reports stay accurate.
How to Track and Review Depreciation Reports?
Track depreciation in QuickBooks Online is not just about recording it but it’s also important to review it regularly to make sure your financial reports are accurate. Here we discuss how to track and review depreciation.
Check the Balance Sheet
- See your Fixed Assets account and the Accumulated Depreciation account.
- The difference between the two shows the current book value of your assets.
Review Depreciation Expense
- Open your Profit & Loss report to see how much depreciation has been recorded as an expense during the period.
- This ensures your expenses reflect the actual cost of using your assets.
Run a General Ledger Report
- Use this report to see all journal entries related to depreciation.
- It helps verify that all entries are correct and consistent with your depreciation schedule.
Reconcile with Your Depreciation Schedule
- If you maintain a separate schedule like in Excel or a Fixed Asset Manager, make sure the numbers match QuickBooks.
- Any differences should be reviewed and corrected.
Best Practices for Track Depreciation in QuickBooks Online
Here we discuss best practices for track depreciation in QuickBooks Online, mentioned below.
- Record depreciation consistently every month or year.
- Review your reports regularly and reconcile them with your depreciation schedule.
- Consult your accountant for advice on depreciation methods and schedules to ensure compliance with accounting standards.
Conclusion
In conclusion, we hope this blog is helpful for you to track depreciation in QuickBooks Online. In this blog, we explain whether QBO tracks depreciation automatically or not, set up an account for track depreciation in QuickBooks Online and use QBO Advanced for automated depreciation. If you have any queries then contact our ProAdvisor to solve your queries.