Quicken & Other Budget/Accounting Software/Depreciation of Fixed Asset



What is the different between Accumulated Depreciation in Asset category and Depreciation in Expenses Category?


It is important that financial statements tell the full story of the business.
The fixed asset section of the balance sheet, lets the reader see how much
has been invested in capital assets (assets that have a useful life of more that one year
and is not purchased for resale).  These assets are required for the production of income.
When the asset is no longer operational, it must be replaced, which requires cash flow.
Accumulated depreciation bucket tells the reader of the financials what percentage
of value remains and they can look to retained earnings to see if the business is
retaining enough for the replacement of these assets when necessary.    If the accountant
simply netted accumulated deprecation with the asset's cost, it would be difficult to
gauge the cost of replacement.   

Smaller companies may keep their books (in the USA)on a tax basis.  Tax basis reporting permits the posting of depreciation based on the write off allowed on the business tax return. Last year you could depreciate up to $500,000 in new equipment purchases. So a business who purchased a $200,000 machine could have taken $200,000 in depreciation.   If the company maintained tax basis financials then accumulated depreciation would have increased by $200,000. The story these financials tell, would be the cost basis not yet depreciated that will help offset taxes in future years.  Certainly not as good a story as depreciation booked over the life of the asset.  

Accounting LOVES "the matching principle" where you record the expense during the period  incurred rather than when cash was laid out to make the purchase.  
Depreciation spreads the cost of that asset over its useful life, matching the expense
the the periods it is employed to generate revenue (directly or indirectly).

Accumulated depreciation shows the total cumulative depreciation taken on capital assets to date.   Depreciation expense is the cost for one year of depreciation.

Linda Saltz, CPA
Advanced Certified QuickBooks Advisor
We sell and support QuickBooks Enterprise

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So what is the entries to record the acumulated depreciation and depreciation expenses for a fixed asset?

Debit depreciation Expense
Credit Accumulated Depreciation

Some companies keep a separate accumulated depreciation account for
 each class of assets

For example the fixed asset section of the balance sheet could look like this
Computer & Office Equipment
Leasehold improvements
Accumulated Depreciation (all depreciation for all of the above)


Accumulated Depreciation Vehicles
Accumulated Depreciation Equipment
Computer & Office Equipment
Accumulated Depreciation Comp and Office
Accumulated Depreciation Buildings
Leasehold improvements
Accumulated Depreciation Leasehold Improvements

This would be your choice based on what you feel the readers of the financial
statements would be most interested in.

Linda Saltz, CPA

Quicken & Other Budget/Accounting Software

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Linda Saltz, CPA, QBalance.com


QuickBooks best practices, troubleshooting, accounting, tax We have over 70 pages of website content about QuickBooks tips, running a business, tax and business startup at http://www.qbalance.com


Accountant and CPA over 20 years. Specializing in accounting software for over 12 years, Certified QuickBooks Pro Advisor, QuickBooks seminar instructor since 1997.
Producer of www.QBalance.com over 100 pages devoted to QuickBooks help and support and training for small business owners in tax and accounting issues.

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