Depreciation Entry
Question: A Fixed Asset Item has been acquired and kept in a warehouse. How do you make a depreciation entry for a Fixed Asset Item?
Answer: If you're dealing with fixed assets as stock items and have warehoused them, you can post a depreciation entry for the items via the Stock Reconciliation feature. Through this process, you can decrease the asset's book value directly from inventory.
Step 1
Create the Stock Reconciliation .csv template in the following manner and complete the required columns:
- Item Code: Input the item code of the asset you wish to depreciate.
- Warehouse: Identify the warehouse where the fixed asset is located.
- Qty (Quantity): Do not fill in this column if the quantity is not being updated (because only the value is changing).
- Valuation Rate: Input the new depreciated value per unit of the item. This is the asset's new value after depreciation.
This valuation rate represents the decreased asset value, and ERPNext will compute the depreciation automatically as the difference between the old valuation rate and the new one.
Tip: Always ensure double that the item has been identified as a Fixed Asset Item and that no incorrect valuation updates are made, as this affects both stock and financial reports.
After filling up the .csv properly, return to the Stock Reconciliation form, upload, and click Save to continue posting the entry.
Step 2
In the Stock Reconciliation form:
- Make the Difference Account the Depreciation Expense Account (this account will have the depreciation expense reflected).
The system will also automatically determine and post the difference between the old and new rates of valuation as the depreciation value. It is calculated as:
- Credited against the inventory value of the asset, and
- Debited to your selected Expense Account, showing depreciation in your books.
Note: Stock reconciliation is the only way to properly book depreciation and have your inventory valuation and your general ledger properly reflect the changes following best practices of asset accounting.
Applying this approach is especially helpful when depreciation must be explicitly accounted for on inventory-managed fixed assets without having to go through the normal depreciation schedule that is attached to Asset records.