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Guide 07 · Step by step

Fixed Assets and Depreciation: How Equipment Reaches the Books

A truck, a machine, or a building is paid for once and used for years. The chart of accounts needs four accounts to show that: the asset, its accumulated depreciation, the monthly depreciation expense, and the gain or loss when it is sold. This page walks each one from purchase to statement line.

Read 8 min readUpdated Steps 7Format Open access

At a glance

Who it is for

Owners who have bought, or are about to buy, equipment, vehicles, furniture or a building for the business.

What you will have

The asset accounts your chart needs, accumulated depreciation under each one, a depreciation expense account, a written threshold and a monthly entry.

Time needed

About an hour the first time. A few minutes each month after that.

What you need

A list of what the business owns, with each item’s cost, purchase date and how many years you expect to use it.

01

Write down your capitalization threshold

Decide which purchases become fixed assets before you add a single account.

What to do
  1. A fixed asset is a purchase the business will use for more than one year, does not buy to resell, and that costs more than your threshold.
  2. Pick the dollar amount. Anything below it is expensed when bought, even if it lasts for years.
  3. Write the rule down once and apply it the same way every time.
02

Choose your asset accounts

One account per group of assets you want to see on the balance sheet.

What to do
  1. One Machinery & Equipment account is enough for a business with a few machines.
  2. Add Vehicles, Furniture & Fixtures, Buildings or Leasehold Improvements when you want to know what each group cost.
  3. Give Land its own account. Land is not depreciated, so it has no accumulated depreciation account.
03

Add accumulated depreciation under each asset

The asset keeps what you paid. A second account keeps how much of it is used up.

What to do
  1. Create one Accumulated Depreciation account for each depreciable asset account, as a sub-account of that asset.
  2. Name it after the asset: Accumulated Depreciation - Vehicles.
  3. Type Fixed Assets, detail type Accumulated Depreciation. It carries a credit balance and reduces the asset above it.
04

Add the depreciation expense and disposal accounts

Three accounts on the income statement complete the set.

What to do
  1. Depreciation Expense: type Expenses, detail type Other Business Expenses, numbered in the 6900s, so it counts as an operating expense.
  2. Repairs and Maintenance: type Expenses, detail type Repair & Maintenance, for spending that keeps an asset working.
  3. Gain or Loss on Sale of Fixed Assets: type Other Income, for the difference when an asset leaves the business.
05

Record the purchase at its full cost

The cost is everything it took to get the asset ready to use.

What to do
  1. Add delivery and installation to the price. A $30,000 machine with $1,200 of delivery and installation is recorded at $31,200.
  2. Debit the asset account. Credit Accounts Payable, or the bank account if you paid at once.
Purchase the machine on account
1500 Machinery & EquipmentDebit31,200
2000 Accounts PayableCredit31,200
06

Post depreciation every month

The same entry, every month, for the life of the asset.

What to do
  1. Subtract the expected sale price at the end from the cost: $31,200 less $1,200 is $30,000.
  2. Divide by the years you expect to use it. Over five years that is $6,000 a year, or $500 a month on the straight-line method.
  3. Debit Depreciation Expense and credit the asset’s accumulated depreciation account. Set it up as a recurring journal entry in QuickBooks.
  4. After month one the balance sheet shows $31,200, less $500, net $30,700. The income statement shows $500 of machine cost.
One month of straight-line depreciation
6900 Depreciation ExpenseDebit500
1505 Accumulated Depreciation - Machinery & EquipmentCredit500
07

Record a sale or disposal

Clear the asset and its accumulated depreciation, and book the difference.

What to do
  1. Remove the asset’s cost and its accumulated depreciation from the books.
  2. Record the cash received. The difference between book value and sale price goes to Gain or Loss on Sale of Fixed Assets.
  3. A machine with a book value of $1,200 that sells for $1,800 books a $600 gain. Sold for $900, it books a $300 loss.
Account treatment

The accounts, and how QuickBooks treats each one

Use the type and detail type exactly as written. The numbers are a starting point; keep each account inside its range.

1500Machinery & Equipment
Type
Fixed Assets
Detail type
Machinery & Equipment
Range
1500–1799
Use it for
Machines, tools and computers above your threshold
1505Accumulated Depreciation - Machinery & Equipment
Type
Fixed Assets
Detail type
Accumulated Depreciation
Range
Asset number + 5
Use it for
Always, as a sub-account of 1500
1510Vehicles
Type
Fixed Assets
Detail type
Vehicles
Range
1500–1799
Use it for
Trucks, vans and cars used in the business
1515Accumulated Depreciation - Vehicles
Type
Fixed Assets
Detail type
Accumulated Depreciation
Range
Asset number + 5
Use it for
Always, as a sub-account of 1510
1520Furniture & Fixtures
Type
Fixed Assets
Detail type
Furniture & Fixtures
Range
1500–1799
Use it for
Desks, shelving and fittings above your threshold
1525Accumulated Depreciation - Furniture & Fixtures
Type
Fixed Assets
Detail type
Accumulated Depreciation
Range
Asset number + 5
Use it for
Always, as a sub-account of 1520
1530Leasehold Improvements
Type
Fixed Assets
Detail type
Leasehold Improvements
Range
1500–1799
Use it for
Build-out work on space you rent
1535Accumulated Depreciation - Leasehold Improvements
Type
Fixed Assets
Detail type
Accumulated Depreciation
Range
Asset number + 5
Use it for
Always, as a sub-account of 1530
1540Buildings
Type
Fixed Assets
Detail type
Buildings
Range
1500–1799
Use it for
A building the business owns
1545Accumulated Depreciation - Buildings
Type
Fixed Assets
Detail type
Accumulated Depreciation
Range
Asset number + 5
Use it for
Always, as a sub-account of 1540
1550Land
Type
Fixed Assets
Detail type
Land
Range
1500–1799
Use it for
Land the business owns. Never depreciated
4900Gain or Loss on Sale of Fixed Assets
Type
Other Income
Detail type
Gain/Loss on Sale of Fixed Assets
Range
4700–4999
Use it for
When an asset is sold or scrapped
6410Repairs and Maintenance
Type
Expenses
Detail type
Repair & Maintenance
Range
6000–6999
Use it for
Spending that keeps an asset working
6900Depreciation Expense
Type
Expenses
Detail type
Other Business Expenses
Range
6900–6999
Use it for
The monthly share of each asset’s cost
Worked example

Juniper Row Landscaping

A fictional business. All figures are illustrative.

Juniper Row owns two trucks, a trailer and four mowers. Its chart put all of them in one account, expensed the newest mower, and typed depreciation as Other Expense. After the steps above, each group has its own account and its own accumulated depreciation.

Before
  • 1500Equipment
    Fixed Assets · Trucks, mowers and the trailer in one account
  • 1590Accumulated Depreciation
    Fixed Assets · One account, under no asset
  • 6150Equipment Purchases
    Expenses · A new mower was posted here
  • 7600Depreciation
    Other Expense · Prints below operating income
After
  • 1500Machinery & Equipment
    Fixed Assets
  • 1505Accumulated Depreciation - Machinery & Equipment
    Fixed Assets
  • 1510Vehicles
    Fixed Assets
  • 1515Accumulated Depreciation - Vehicles
    Fixed Assets
  • 4900Gain or Loss on Sale of Fixed Assets
    Other Income
  • 6410Repairs and Maintenance
    Expenses
  • 6900Depreciation Expense
    Expenses
  • The mower moved from Equipment Purchases to Machinery & Equipment, so that month no longer shows a loss.
  • Trucks have their own account, so the owner can see what the fleet cost apart from the mowers.
  • Depreciation is an operating expense numbered 6900, inside operating income.
Avoid these

Common mistakes

  • Posting a large purchase to an expense account. One month shows a large loss, and every later month shows a profit that is too high.
  • Leaving delivery and installation out of the asset’s cost.
  • Writing the asset account down directly instead of using accumulated depreciation. The original cost disappears from the balance sheet.
  • Posting repairs to the asset account. The maintenance cost is hidden, and the asset looks more valuable every year.
  • Typing depreciation as Other Expense with the Depreciation detail type, which moves it below operating income.
  • Recording the sale of an asset as revenue.
  • Depreciating land.
Download

The fixed-asset accounts, ready to upload

The 14 accounts from the table above, each with its type, detail type and number. Open it in Excel, or keep it for when you start a chart in ChartOfAccounts.ai.

fixed-asset-accounts.xlsx · fixed-asset-accounts.csv
Download ExcelDownload CSV
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