How to account for depreciation in Xero
How to set up and post depreciation in Xero — straight‑line and reducing‑balance — with the monthly journal and a worked example.
This walkthrough explains how to account for depreciation in Xero using straight-line and reducing balance methods, then shows how to post the depreciation journal entry. It helps UK small business owners and bookkeepers understand depreciation expense, accumulated depreciation, and net book value in Xero.
Depreciation spreads the cost of a fixed asset across its useful life, so each period carries a fair share of the cost rather than expensing it all on purchase.
Two common methods
- Straight‑line: the same charge each period. A £6,000 laptop fleet over 3 years = £2,000/year (£166.67/month).
- Reducing balance: a fixed percentage of the remaining book value each year, so charges are higher early on.
The monthly journal
- Debit
Depreciation expense(P&L) - Credit
Accumulated depreciation(balance sheet, contra‑asset)
The asset's net book value (NBV) = original cost − accumulated depreciation.
Worked example (straight‑line)
| Year | Charge | Accumulated | NBV |
|---|---|---|---|
| 0 | — | £0 | £6,000 |
| 1 | £2,000 | £2,000 | £4,000 |
| 2 | £2,000 | £4,000 | £2,000 |
| 3 | £2,000 | £6,000 | £0 |
Xero's fixed‑asset tools — and the gap
Xero has a fixed‑asset register that can run depreciation, but many practices track assets outside Xero or need finer control across multiple entities. WorkWithLottie builds depreciation schedules, posts the monthly journals, and reconciles NBV back to Xero alongside your accruals and prepayments — one place for every month‑end schedule.
Related: What is depreciation?
More on Depreciation
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