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.
Asset vs expense
A $45 rakes-and-gloves run is office or materials expense. A $4,800 commercial mower is Equipment (fixed asset). The line is useful life beyond a year and 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 or bonus depreciation 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
Choices shuffle each visit. Misses send you back to the section — Look back clears the quiz so you can try again.
Choose an answer, then check.
Accumulated depreciation is:
Practice: Monthly depreciation