Adding a new fixed asset in Xero helps to calculate depreciation throughout the year. The following is a step-by-step guide on how to record in Xero Fixed Assets.
Xero Fixed Assets: When do you have to depreciate an asset rather than expense the asset for tax purposes?
The IRS has come out with a ruling that allows you to expense an asset rather than depreciate when three things happen (IR-2015-133):
- You spend less than $2,500
- You have annual financials
- You have the invoice
Xero Fixed Assets: Recording the Purchase
In order to make sure the fixed asset gets recorded in your books, you have to account for both:
1. The purchase of an asset
- The depreciation or write off of that asset.
Purchase of an Asset typically happens as follows:
- You purchase the asset and pay cash or use your credit card, OR
- You purchase the asset via a loan.
Xero Fixed Assets: Recording Depreciation in Xero
There are 2 non-cash transactions to recognize the asset value that must be made once the asset is put into use:
- Accumulated Depreciation
Xero Fixed Assets: How do you add a new fixed asset in Xero?
Let’s say that you went out and purchased a new Apple computer for $3,000 for cash or on a credit card.
Here are the steps to record your fixed asset.
- Reconcile the purchase in your bank account or credit card. Once you reconcile the bank account or credit card with the purchase you are adding the asset to your balance sheet.
If you are recording an asset using a loan, the easiest way would be to record a journal entry. You may want to ask the advice of your accountant when adding a journal entry. Assuming you purchased the same computer with a loan, this would be the journal entry.
Computer Equip- $3000 (debit)
Loan account (ie Computer Loan)- $3000 (Credit)
Now that the asset has been added, the following steps will help you calculate the depreciation in Xero’s fixed asset account:
- Navigate to Fixed Assets: Click on Accounts—Fixed Assets
- Add a New Fixed Asset
3. Add Asset Details
In this case we added the details of the computer and added the asset type as a “computer”
We also recommend adding a description, like who will use the computer. You may find that you buy many computers- all with the same brand the only way to differentiate them is the serial number or description.
- Book Value
Record the asset on the day of purchase and choose the method of depreciation. Many times you will want to maximize the depreciation (section 179), you can do this by choosing “Full Depreciation at Purchase.” You may have to ask your accountant which is the best method for your tax situation.
- Click Register
- Run Depreciation
- Check Figures by pulling your income statement and balance sheet:
- Reports—Balance Sheet
You can see in the prior period, the assets and depreciation are $3,000 less than it is currently. ($4,250 – $1250)
Confirming that both the asset and accumulated depreciation has been recorded correctly.
So, what did we just learn?
Adding your assets correctly in Xero is a two step process. Add the asset and record depreciation. Following the steps above will ensure proper recording of your fixed assets and help you add your assets to Xero Fixed Assets account.