If your business purchases machinery and equipment that is used for many years, you need to track depreciation expenses within QuickBooks. In this episode of MissionBusinessPodcast.com Bernard Roesch explains what depreciation is, why you need to track it, and how to track it easily within QuickBooks.
If you have any questions about this podcast episode, please feel free to contact us.
What is depreciation?
Depreciation enables you to spread out the cost of an expensive asset over time. For example, a dentist that buys specific machinery for a significant expense that will be used over a period of five years needs to depreciate the cost of that purchase monthly over that entire five-year period.
- Spreading out the cost of a large expense over the life of that asset is important to make sure that your bookkeeping records properly accommodate for that expense.
- If you were to log that expense when the purchase was made, this would significantly impact your accounting records and may even have negative tax and legal consequences for your business.
How to Track Depreciation Within QuickBooks
There are a number of different steps to take to appropriately track depreciation expenses within QuickBooks.
- Once the purchase of the machinery or equipment is made, you need to record that as an asset within QuickBooks rather than an expense.
- This asset would then be shown on the balance sheet within QuickBooks.
- You can calculate the depreciation expense that should be applied monthly using a few different methods.
Discuss specific depreciation schedules with your accountant, but using a straight line depreciation schedule means that the expense is spread evenly, monthly, across the lifetime of the asset.
To easily document the depreciation expense within QuickBooks, you can use memorized transactions.
- Memorized transactions within QuickBooks enable you to configure an expense that is entered into QuickBooks monthly over a specific amount of time.
- This ensures that the depreciation expense is entered appropriately each month without having to remember to enter it, since it does not show up on your bank account.
If you are not using a straight line depreciation schedule, work with your accountant to define the depreciation schedule and then consider configuring those expenses within QuickBooks, all at once, as transactions into the future. This accomplishes the same goal as the memorized transaction feature above, so you have all of the depreciation expenses logged appropriately within QuickBooks.
We Can Help You
If your business needs to track depreciation but is not currently doing it effectively within QuickBooks, contact Bernard today.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.