If your QuickBooks Online Balance Sheet shows equipment, vehicles, furniture, or other long-term assets — but your Profit & Loss has no depreciation expense — your books are missing something important.
Depreciation isn't optional. It's how accounting recognizes that physical assets lose value over time, and it's a real expense that affects both your financial statements and your taxes. Skipping it overstates your assets, understates your expenses, and overstates your net income.
When you buy a piece of equipment for $10,000, you don't use it up all at once. You use it over several years — maybe five or ten. Depreciation is the accounting method for spreading the cost of that asset across the years you actually use it.
Instead of recording $10,000 as an expense in year one, you record a portion of the cost each year over the asset's useful life. The result: a depreciation expense appears on your Profit & Loss each year, and the asset's book value on your Balance Sheet decreases over time through an Accumulated Depreciation account.
Your Balance Sheet overstates what your assets are worth. Without depreciation, a five-year-old piece of equipment still appears at its original purchase price. That inflates your total assets and paints a rosier picture of your business's value than is accurate.
Your net income is overstated. Depreciation is a real operating expense. If it's not recorded, your Profit & Loss is missing a cost that legitimately reduces your profit.
Your taxes may be wrong. Depreciation is generally deductible. If it's not being recorded in your books, your CPA may not have the information they need to apply it correctly. (Note: tax depreciation and book depreciation follow different rules — your CPA handles the tax side, but your books should reflect book depreciation independently.)
Anyone reviewing your financials will notice. Lenders, investors, and accountants routinely look for depreciation on fixed assets. If it's absent, it raises questions about the reliability of your books.
This surprises a lot of business owners: QBO does not calculate or post depreciation for you. Unlike bank feeds or automatic reconciliation matching, depreciation requires a manual journal entry posted on a regular schedule — monthly, quarterly, or annually.
This is the main reason depreciation gets missed. You record an asset purchase, it sits on the Balance Sheet, and without a reminder or workflow in place, months or years pass without a single depreciation entry.
Run your Balance Sheet (Reports → Balance Sheet) and look at the Fixed Assets section. If you see asset accounts — Equipment, Vehicles, Furniture, Leasehold Improvements — check whether each one has a paired Accumulated Depreciation account beneath it. If not, depreciation has never been recorded for those assets.
Then run your Profit & Loss (Reports → Profit & Loss) and look for a Depreciation Expense line. If your business owns physical assets and this line is missing or shows zero, that confirms the gap.
Each fixed asset should have three components in QBO: the asset account at its original cost, a paired Accumulated Depreciation account that grows each period, and a recurring Depreciation Expense entry on the Profit & Loss. The difference between the original cost and accumulated depreciation is the asset's current book value.
Getting this set up correctly — especially when catching up on prior periods — involves decisions about depreciation method, useful life, and how to handle years that have already been filed. The Fix Guide walks through the setup process and the catch-up approach step by step.
These are tax elections that let you deduct the full cost of certain assets in the year of purchase for tax purposes. They're handled on your tax return by your CPA — not in QBO.
Your books should still reflect book depreciation over the asset's economic life. The tax treatment and the book treatment are separate things. A Section 179 election on your return does not replace depreciation entries in QBO.
Missing depreciation is a common recording gap BooksCheckup checks for in QuickBooks Online — often appearing alongside related issues like no Accumulated Depreciation account set up, fixed assets still showing at original purchase price after several years, or capital expenditures misclassified as operating expenses. BooksCheckup gives you a free books health check in seconds.
Check your books at BooksCheckup.com →
If recording errors show up in your Health Score, the Fix Guide ($49) explains each one and walks through suggested corrections in priority order.
This article is for educational purposes and does not constitute accounting, tax, or legal advice. For guidance on your specific situation, consult a qualified bookkeeper, CPA, or tax professional.
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