How do I add a fixed asset and compute its depreciation?

A fixed asset is something you buy to use for years rather than to sell: a vehicle, a machine, furniture, equipment. It is not recorded as a one-off expense; its cost is spread across its useful life — and that is depreciation.

Steps

1. Open Accounting → Assets — Figure 1 — then Add asset.
2. Enter the asset name, the purchase cost, and the purchase date — Figure 2.
3. Set the useful life in years, and the salvage value if you expect to sell it at the end of its life.
4. Tie it to the asset account, the accumulated depreciation account, and the depreciation expense account.
5. Save. The system shows the monthly depreciation schedule computed out to the end of the life.

How depreciation is computed

By the straight-line method: (cost − salvage value) ÷ the number of months of useful life. So a vehicle at 12,000 with a five-year life and a salvage value of 2,000 depreciates 166.67 a month.

The monthly depreciation entry

At each month end an entry is recorded: debit depreciation expense / credit accumulated depreciation. The expense rises in the income statement and the asset’s book value falls in the balance sheet — the original cost is never touched.

Notes

• Do not record the purchase of an asset as a payment voucher against an expense; the first year then looks like a loss and the following ones like a profit, neither of them true.
• Assets already owned at start-up are entered at their current book value and their remaining life, not at their old purchase cost.
• A small purchase (a cheap printer) does not deserve to be an asset; set a minimum threshold and hold to it.
• When an asset is sold do not delete it; record the sale so its accumulated depreciation closes and the resulting gain or loss appears.