What is depreciation and how do I record it?

What is Depreciation?

Depreciation refers to the allocation of the purchase value of the fixed asset over the planned useful lifetime of the asset. For example:

  • You purchase a £10,000 piece of equipment with a 5-year depreciation plan. 
  • At the point of purchase, the purchase value of £10,000 gets added to the Fixed Assets total on your Balance Sheet, and none of the value is recorded as expenditure.
  • For each of the next 5 years, £2,000 per year gets recorded as depreciation against a 'depreciation' expenditure category. (This category should be added to your expenditure categories within the categories settings screen). Over this period, the depreciation costs will account for the purchase value of the asset.

Most Fixed Assets lose value because they have a limited useful life, and because of this ‘depreciation’ it needs to be included in your year-end accounts each year.

Most assets are typically depreciated linearly, for example, if a computer costs £1,000 and is expected to last for 4 years, then its annual depreciation would be £250 each year for 4 years.
Different types of Fixed Assets may be depreciated differently, and this should be set out in your organisation's capitalisation and Fixed Assets policy, which can be found in your statutory accounts.

How do I record it in ExpensePlus?

Depreciation is usually just added at year-end, as part of the process for closing off your accounts.
To add depreciation, within the Fixed Assets register, click the ‘+’ button at the end of each row and add depreciation according to your organisation's policy and the expected lifetime of the Fixed Asset. If you don't have an appropriate expenditure category for depreciation, you can add one in the categories settings screen.

This will decrease your Fixed Asset value both on the Fixed Assets screen, and on the Balance Sheet. It will ALSO create a corresponding expenditure transaction for depreciation that will appear on your Income and Expenditure report against the expenditure category selected.

To help you better understand the Fixed Assets module as a whole, please visit the module overview page here.

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