Before You Start

This guide assumes you have a Xero Standard or higher subscription and basic understanding of depreciation concepts.

Overview

25 min
Setup Time
Intermediate
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to create and manage asset types in Xero
  • Assigning appropriate depreciation methods (tax vs. accounting)
  • Automating depreciation journals and disposals
  • Reconciling your asset register with the Balance Sheet

1. Preparation Steps

You need these accounts in Xero’s Chart of Accounts:

Required Accounts

  • Fixed Asset Account (e.g., Equipment, Vehicles - Non-current Asset)
  • Accumulated Depreciation (e.g., Accumulated Depreciation - Non-current Asset)
  • Depreciation Expense (Expense)
  • Gain/Loss on Asset Disposal (Other Income/Expense)

Optional (but recommended)

  • Impairment Expense (Expense)
  • Revaluation Reserve (Equity)

2. Key Depreciation Methods

Xero allows you to set up different depreciation methods.

Method A: Accounting Depreciation

This method reflects the economic usage of the asset.

Pros:
  • Reflects economic usage.
  • Aligns with IFRS/GAAP.
  • Provides accurate financial reporting.
Cons:
  • May differ from tax methods.
  • Can require more complex calculations.
  • Might need manual adjustments for tax.

Method B: Tax Depreciation

This method follows specific tax authority rules for asset write-offs.

Expert Tip: If your tax and accounting depreciation methods differ, you can use Xero’s built-in functionality to track both. This ensures your financial statements are compliant while also simplifying tax return preparation.

3. Setting Up Asset Types in Xero

Here is the high-level workflow for establishing your asset register.

Here is a sample code block to show how an asset might be defined.

{
  "asset_name": "Company Laptop - John",
  "asset_type": "Computers",
  "purchase_date": "2025-01-15",
  "purchase_price": 1200.00,
  "useful_life_years": 3,
  "depreciation_method": "Straight Line"
}

4. Automating Depreciation

  1. 1

    Navigate to Fixed Assets

    In Xero, go to Accounting > Fixed Assets. This is your central hub for asset management.

  2. 2

    Create Asset Types

    Define asset categories like “Computers”, “Vehicles”, “Furniture”. Assign default GL accounts and depreciation settings for each type.

  3. 3

    Add New Assets

    Enter individual asset details including purchase price, acquisition date, useful life, and selected depreciation method. Xero will then automate the calculation.

Common Error: Incorrect Account Mapping

Ensure your ‘Accumulated Depreciation’ account is set as a ‘Fixed Asset’ type in Xero, not an ‘Expense’ or ‘Liability’. This is crucial for correct Balance Sheet presentation.

5. Reconciling the Asset Register

Reconciliation Checklist

  • Run the Fixed Asset Reconciliation report in Xero
  • Compare the register’s total value to the Balance Sheet accounts
  • Verify monthly depreciation journals are posted and accurate
  • Review all asset disposals and acquisitions for accuracy

Need Help?

Get Support

Having trouble setting up your Xero Fixed Asset Manager? Our team can help fine-tune your asset register and depreciation settings.

Contact Us