Alex Hartley


How to Record Depreciation Automatically in Xero

A calculator displaying the word 'depreciation'.
Xero Helps You Keep Track Of Depreciating Assets

Introduction: Simplifying Depreciation with Xero

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Depreciation can be a complex and time-consuming process, particularly for businesses with a considerable number of fixed assets. Fortunately, Xero, a leading cloud accounting software, offers a streamlined approach to managing depreciation. This guide delves into how you can record depreciation automatically in Xero, leveraging the platform’s comprehensive features to manage your fixed assets efficiently.

Understanding Depreciation in Xero

Before diving into the process, it is essential to understand what depreciation is and its significance. Depreciation is the accounting process of allocating the cost of a fixed asset over its useful life. Essentially, things lose value over time due to a variety of factors, from physical wear and tear to the fluctuation of financial markets. Depreciation is an accounting method that measures how much this costs a business. Xero centralises this process, making it easier to manage your fixed asset register and run depreciation schedules.

The Role of the Fixed Asset Register in Xero

  • Centralised Management: The fixed asset register in Xero is a critical component, allowing you to keep track of all your assets in one place.
  • Simplified Record-Keeping: It enables you to maintain detailed records of each asset, including purchase price, effective life, and accumulated depreciation.

Setting Up Your Fixed Assets in Xero

To start depreciating assets in Xero, you first need to add them to your fixed asset register.

Adding Assets to the Register

  • Step 1: Go to the ‘Fixed Assets’ section in Xero.
  • Step 2: Click ‘Add Asset’ and input details like asset number, name, purchase date, and cost.
  • Step 3: Assign the asset to the appropriate fixed asset account in your chart of accounts.

Choosing the Right Depreciation Method

Xero offers various depreciation methods. Select one that aligns with your asset type and financial reporting requirements.

  • Straight-Line Method: Depreciates the asset by a fixed amount each year.
  • Diminishing Value Method: Depreciates the asset by a fixed percentage, resulting in higher depreciation in the earlier years.

Running Depreciation in Xero

Once your assets are set up, you can run depreciation to calculate and record depreciation expense for a specific period.

Steps to Run Depreciation

  • Select the Date: Choose the date for which you want to run depreciation.
  • Review Assets: Ensure all relevant assets are included and the details are correct.
  • Run the Depreciation Schedule: Xero will calculate and display the depreciation expense for each asset.

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Depreciation Journals and Financial Reporting

When you run depreciation, Xero automatically generates depreciation journals, impacting your financial statements.

  • Impact on Balance Sheet: The book value of assets is reduced, and accumulated depreciation increases.
  • Effect on Profit and Loss: Depreciation expense is recorded, reducing your profit for the period.

Editing and Disposing of Assets

Xero also allows you to edit asset details and record disposals.

  • Editing Assets: You can update details like purchase price, effective life, or depreciation method.
  • Recording Disposals: When you dispose of an asset, record it in Xero to remove it from your register and recognise any gain or loss on disposal.

Rolling Back Depreciation in Xero

There might be instances where you need to rollback depreciation due to errors or changes in asset details.

Steps to Rollback Depreciation

  • Navigate to Fixed Assets: Go to the ‘Fixed Assets’ section in Xero.
  • Select the Asset: Choose the asset for which you need to rollback depreciation.
  • Roll It Back: Use the rollback feature to reverse the depreciation for a specific period.

Impact of Rolling Back

  • Adjustment in Financial Statements: Rolling back will adjust your balance sheet and profit and loss to reflect the changes.
  • Re-run Depreciation: After rolling back, you can update the asset details and re-run the depreciation schedule.

Managing Disposals in Detail

Disposing of assets is a common occurrence, and Xero simplifies this process.

Recording Asset Disposal

  • Choose the Disposal Option: In the fixed asset register, select the asset you wish to dispose of.
  • Input Disposal Details: Enter details like disposal date and sale price (if applicable).
  • Confirm Disposal: Xero will calculate any gain or loss on disposal and reflect it in your accounts.

Mastering Depreciation with Xero

By utilising Xero’s advanced depreciation features, you can manage your fixed assets and depreciation schedules with greater accuracy and efficiency. Whether you need to rollback depreciation, record disposals, or seek guidance, Xero provides the tools and resources to streamline these processes.

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Alex Hartley
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To create a depreciation schedule, you need to first set up an account in your accounting software that will be used as the “Depreciation Account”. Then add all relevant assets into this account according to their respective categories or codes. Finally, set up specific rules or calculations for each category or code based on the expected annual or monthly rate of depreciation.

To run a single-period depreciation, you must enter into your accounting software each asset’s date when it was put into service along with its depreciable amount. Once you have completed this step, select “Show Depreciation” and choose which period you want to depreciate for that asset. Once complete, record it as an expense by selecting an expense account with an appropriate code.

It depends on your own circumstances but typically most businesses will run their Depreciation Schedule at least once per financial year; however some may choose to do so more or less frequently than this depending on their business needs.

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