Depreciation is the method used in accounting to spread the cost of a fixed asset over its useful life. Rather than recording the full cost of an asset when it is purchased, depreciation allocates that cost gradually, reflecting how the asset loses value over time through use or obsolescence.
This ensures that your financial statements provide a more accurate view of the asset’s current worth and the business’s true profitability. In Xero, depreciation can be easily managed through the Fixed Assets function, allowing you to run or roll back depreciation as needed.
What is depreciation?
The depreciation reflects in your accounting the loss of value of your assets and it is doing progressively.
If the business makes any change in assets where the depreciation is done, it might be necessary to roll back the depreciation.
How to run depreciation in Xero
Run depreciation
- In the Accounting menu, select Advanced, then click Fixed assets.
- Click Run Depreciation.
- Select the date you want to run depreciation to.
- Review the depreciation preview, then click Confirm.
How to Roll back depreciation in Xero
- In the Accounting menu, select Advanced, then click Fixed assets.
- Click Run Depreciation.
- Click Rollback Depreciation.
- Select the date to roll back to.
- Click Save, then click Confirm
Why Depreciation Matters
Depreciation plays an important role in both financial reporting and tax planning. From a reporting perspective, it ensures that your balance sheet accurately represents the current value of your assets, and your profit and loss account reflects realistic expenses for each period.
From a tax perspective, depreciation determines the capital allowances you can claim, helping to reduce your taxable profits. Keeping depreciation records accurate and up to date in Xero not only maintains compliance but also provides a clearer picture of your business’s long-term financial position.
If you need help with this, or with other advice, then please get in touch with our accounting team.