Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It reduces taxable income each year and reflects the asset's declining value.
Depreciation is how you account for the wear and tear of physical business assets over time. Instead of recording the full cost of an asset as an expense when purchased, you spread the cost over its useful life through annual depreciation charges. This matches the cost to the periods in which the asset generates revenue. The two main depreciation methods are straight-line (equal amounts each year) and diminishing value (higher amounts in early years, declining over time). The choice of method affects your tax deductions and asset values on the balance sheet. Most tax authorities publish tables of effective useful lives for different types of assets. Many countries also offer accelerated depreciation or instant write-offs for assets below certain thresholds. Proper depreciation tracking requires maintaining an asset register that records each asset's cost, acquisition date, depreciation method, useful life and accumulated depreciation. SortBooks ensures asset purchases are correctly categorised in Xero and works with the fixed asset register to maintain accurate depreciation schedules.
SortBooks helps with the bookkeeping behind depreciation by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing depreciation by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Amortisation is the process of spreading the cost of an intangible asset over its useful life. It is similar to depreciation but applies to non-physical assets like patents, trademarks and software.
An asset is anything of value that your business owns or controls. Assets are listed on the balance sheet and include cash, receivables, inventory, equipment, property and intangible items.
Capital expenditure is money spent on acquiring or improving long-term assets like equipment, property or vehicles. Unlike operating expenses, CapEx is not fully deducted in the year of purchase but depreciated over time.
The balance sheet is a financial statement that shows your business's assets, liabilities and equity at a specific point in time. It follows the equation: Assets = Liabilities + Equity.
The instant asset write-off allows small businesses to immediately deduct the full cost of eligible assets below a threshold, rather than depreciating them over their useful life.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.