close · Lesson 2 · 10 min
Fixed assets and depreciation
Capitalize what will last. Depreciate the cost (minus salvage, if you use it) over useful life. The contra account holds the wear.
Dotted words have a reminder. Hover on a computer, tap on a phone.
From earlier
- CPA
- QBO
- P&L
Asset vs expense
A $45 rakes-and-gloves run is an office or materials expense. A $4,800 commercial mower is Equipment (fixed asset). The test is useful life beyond a year, plus materiality — your engagement letter should name a capitalization threshold (commonly $1,000, $2,500, or the IRS de minimis safe harbor the CPA is using). Below the threshold, expense it. Above, capitalize.
Straight-line, the bookkeeper’s default
Cost $4,800, salvage $0, 5-year life, monthly books: $4,800 / 60 = $80 per month. Debit Depreciation expense, credit Accumulated depreciation. Accumulated depreciation is a contra-asset: it lives with Equipment on the balance sheet so you see cost and wear. Net book value = cost − accumulated depreciation.
| Account | Debit | Credit |
|---|---|---|
| 6900 Depreciation | $80.00 | |
| 1590 Accumulated depreciation | $80.00 | |
| Totals | $80.00 | $80.00 |
Tax depreciation is allowed to differ
US tax may use Section 179 (2026 dollar limit about $2.56 million) or 100% bonus depreciation (restored by the 2025 Act for qualified property acquired after January 19, 2025) and dump the whole mower into year one on the return. Books can still straight-line. That difference is a book-to-tax reconciling item for the CPA — not a reason to recode the asset to expense in Xero in December. Ask before you “make the books match the return.”
Disposals
Sell the mower for $1,200 when net book value is $1,600: remove cost and accum. dep., debit bank $1,200, debit loss $400 (or credit a gain if you sold above NBV). Do not just code the deposit to income and leave the ghost asset on the balance sheet.
Check
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Accumulated depreciation is: