3.7 Create a Journal Entry

Start in the Sample company.

Now let's get started with the exercise.

First, let's take a look at how the truck appears on the Balance Sheet.

Notice that the original cost of the truck is listed as a fixed asset. We are going to reduce the value of the asset by $5,000, but we still want to remember the original cost.

The value of the depreciation is going to be recorded in two places. First, the total value of the truck will be reduced. Remember, we want to remember the original cost, so we don't want to adjust that. Instead, we're going to track the depreciation in a sub-account of the Truck asset so they stay together on the Balance Sheet.

Fixed Assets are debits. That means if you want the number to go ***down***, you must enter it as a ***credit***. If that doesn't make sense you, don't worry! Debits and credits are outside the scope of this exercise and are not part of the basic level certification test. You can learn more about Debits & Credits in our advanced course [here](https://fastandeasyqbo.samcart.com/products/fast-easy-qbo-advanced-certification).

You have now taken the money ***out*** of the fixed asset (Truck), but where did the money go? The amount of the depreciation is the amount of the asset that the business "used" during the year, so it is considered an ***expense***. We must now debit that expense account, which in the Sample company is also called "Depreciation."

Notice that QBO automatically filled in the amount of the debit, as well as the description. This is because debits and credits must always be equal.

If you are an accountant, or have studied accounting, then your heart may be racing right now because Debits should always be listed before Credits in journal entries. ***That's the rule***. QBO doesn't care what order you put them in as long as they balance, but you can easily move the rows to be absolutely correct.