How to Set Up a Capital Equipment Account in QuickBooks


Capital equipment accounts operate a little differently than normal expense accounts. Rather than recognizing the equipment's expense immediately, the expense is capitalized and depreciated over a period of time. To account for these assets correctly in your QuickBooks accounting program, make a new asset account, record the asset's value and determine and record periodic depreciation expense.

Step 1: Create the Fixed Asset Account

Create the fixed asset account by navigating to your Chart of Accounts, right-clicking anywhere and selecting "New." In the New Account screen, choose Fixed Asset for the account type. Give your equipment a descriptive name like "97 Ford Explorer" or "Sales Phone System." Leave the opening balance at zero.

Step 2: Record the Cost of the Equipment

To record a journal entry for the cost of the equipment, choose Company then Make General Journal Entries. The purchase price of the equipment, along with any installation charges or fees to get the equipment up and running, should be included in the equipment price. In the debit line, record the name of the equipment account and the total equipment cost. In the credit line, indicate which source of funds you used to purchase the equipment, like a checking or savings account.

Step 3: Calculate Equipment Depreciation

You'll need to record equipment depreciation expense on a periodic basis. Before entering the depreciation transaction, calculate your periodic depreciation expense figure. The simplest depreciation method that conforms with generally accepted accounting principles is straight-line depreciation. Under the straight-line method, depreciation expense is the asset cost less any salvage value divided by the useful life of the asset. For example, if your equipment cost $5,000, will have no salvage value and you expect to use it for five years, depreciation expense is $1,000 a year.

Step 4: Record Depreciation Expense

Record depreciation expense for your equipment account at least once a year. To record depreciation, navigate to the journal entry screen and create a new entry. For the debit line, choose Depreciation Expense. For the credit line, choose Accumulated Depreciation. If it's an annual entry, the transaction amount should be yearly depreciation -- in this example, $1,000. Repeat this process until the asset is fully depreciated.


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