Setting up depreciation

Setting up depreciation

Before you can run periodic depreciation on your fixed assets, you need to configure the depreciation method, useful life, and the general ledger accounts that will record the depreciation expense and accumulated depreciation. This setup is typically done during system configuration and again when you add a new asset category.

Before you start

• You must have fixed assets management and chart of accounts permissions (usually granted to accounting managers or administrators).
• Have ready the depreciation method you use (most commonly straight-line, where the asset depreciates equally over its useful life).
• Identify the useful life in months for each asset category (e.g., 60 months for office furniture, 120 months for vehicles).
• Set aside a depreciation expense account (usually under Operating Expenses) and an accumulated depreciation account (contra-asset, paired with your Fixed Assets account) in your chart of accounts.
• Decide whether assets are depreciated starting from the acquisition date or a later depreciation start date.

Setting up depreciation at the category level

Asset categories carry default depreciation settings that apply to all assets added to them. This saves time and ensures consistency.

1. Go to Fixed Assets → Asset Categories (or Settings → Fixed Assets depending on your menu structure). Open in Usystems

2. Click New Category or select an existing category to edit.

3. Fill in the category details:

   • Title: A clear name (e.g., "Office Furniture," "Vehicles," "Equipment").
   • Code (optional): A code for grouping or reporting.
   • Description (optional): Notes on which assets belong in this category.

4. Set the default depreciation parameters (these apply to all new assets in the category):

   • Depreciation Method: Choose "Straight Line" (equal depreciation each period) or "No Depreciation" (if items are not depreciated).
   • Useful Life (months): Enter the estimated useful life (e.g., 60 for 5-year assets, 120 for 10-year assets).
   • Salvage Rate (%) (optional): If the asset has residual value after its useful life, enter it as a percentage of cost (e.g., 10 = 10% salvage). Salvage value reduces the depreciable amount.

5. Link the GL accounts for this category:

   • Fixed Asset Account: The main asset account in your chart (e.g., "1500 Office Furniture").
   • Accumulated Depreciation Account: The contra-asset account (e.g., "1599 Accumulated Depreciation - Furniture").
   • Depreciation Expense Account: The expense account where depreciation is recorded (e.g., "6200 Depreciation Expense").

6. Set the category status to Active if assets should be used immediately.

7. Click Save.

Setting up individual asset depreciation

When you create or edit a fixed asset, you can override the category defaults with asset-specific depreciation settings.

1. Go to Fixed Assets → Assets and click New Asset or edit an existing one. Open in Usystems

2. Enter the basic asset information:

   • Name: Asset description (e.g., "Office Desk - Room 101").
   • Code (optional): Asset number or reference code.
   • Acquisition Date: Date the asset was acquired.
   • Acquisition Cost: Total cost to bring the asset into service.
   • Category: Assign the asset to a category (which auto-fills default depreciation settings).

3. Configure the depreciation for this asset:

   • Depreciation Method: Defaults to the category setting; override if needed.
   • Useful Life (months): Defaults to the category setting; override for a specific asset if it has a shorter or longer life.
   • Salvage Value: Defaults to category salvage rate; enter a specific amount if this asset has a different residual value.
   • Depreciation Start Date: Defaults to the acquisition date; change if depreciation should begin on a different date (e.g., the first of the next month).

4. Optionally, override the GL account mappings:

   • Fixed Asset Account: Defaults to the category account; override if this asset posts elsewhere.
   • Accumulated Depreciation Account: Defaults to the category account; override if needed.
   • Depreciation Expense Account: Defaults to the category account; override if needed.

5. Click Save (the asset starts as Draft; you can set it to Active once acquisition is recorded).

Accounting impact

Setting up depreciation does not itself generate transactions. However:

• Each time you run depreciation for a period, the system posts a debit to the depreciation expense account and a credit to accumulated depreciation.
• Over time, accumulated depreciation reduces the net book value (asset value minus depreciation) shown on your balance sheet.
• Depreciation expense reduces your net profit each period.

Tips & common mistakes

• Choose realistic useful lives: Check your industry standards or tax regulations. Too short a life overstates expense; too long understates it.
• Link accounts correctly: Ensure your depreciation expense account is separate from your fixed asset cost account. Many accounting errors stem from posting depreciation to the wrong account.
• Set salvage carefully: Salvage value should be conservative—the amount you reasonably expect to recover. If salvage is unknown, leave it zero.
• Use consistent category defaults: Setting up a comprehensive category structure at the start saves time and prevents data entry errors.
• Review depreciation settings before the first run: Once depreciation is recorded, it is difficult to reverse. Test your settings on a small asset first if you are unsure.