This is the kick-off to our series on Accrual Accounting, as introduced in our previous blog post.
A company's financial statements are meant to, as best as possible, match its real-world activities and outcomes. Accrual accounting is the mechanism through which this alignment is achieved. It's about recognizing revenues and expenses as they occur, even if the cash hasn't exchanged hands yet, and it's closely related to how you handle accrued expenses on your books.
At Puzzle, we believe in telling stories through numbers. Accrual accounting is the tool we use to create a detailed map that lenders, investors, and other stakeholders can use to read your business's economic picture. It's like putting together the pieces of your financial ahem Puzzle. We'll get right into this concept with Fixed Assets, and a primer on how depreciation expense allows a company to allocate an asset's expense to its financial statements through monthly accruals.
Every fixed asset, whether a computer, cell phone, or office furniture, must be accounted for in a company's financial records. These fixed assets are added to a company's Balance Sheet; in accounting parlance this is called recording an asset as a long-term investment, a concept that also applies to software costs recorded on the balance sheet. Once on the balance sheet, these fixed assets are key inputs to a company's accrual accounting picture.
Over time, the cost of the fixed assets are shifting into a company's Profit & Loss statement through an accrual item called depreciation expense. Depreciation expense accruals are mainly a function of two of an asset's attributes, Useful Life and Cost Basis:
Broadly speaking, depreciation expense is calculated as Useful Life ÷ Cost Basis. For a deeper look at the mechanics, see our guide on how to account for depreciation. While seemingly simple enough, the ongoing tracking of Fixed Assets can get complex and tedious quickly. Take, for example, a company with hundreds of fixed assets: Each asset has its own useful life, initial cost, and set of circumstances surrounding disposal, if they are sold or put out of service permanently. The sheer volume of assets, and underlying calculations, inevitably makes ongoing depreciation tracking a time-consuming and error-prone process.
Check out our release note spotlighting Fixed Asset Depreciation to learn how Puzzle is solving for this.
If you're buying equipment this year, the tax picture around fixed assets just shifted meaningfully. The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, restored 100% bonus depreciation for qualified property placed in service after January 20, 2025, reversing the phase-down that had dropped the rate to 60% in 2024. For calendar-year 2026, that means businesses can immediately expense the full cost of eligible assets instead of spreading depreciation over their useful life. See Wipfli's breakdown of 100% bonus depreciation rules for a full eligibility walkthrough.
The Section 179 deduction limit also increased to $2.56 million in 2026 (phasing out at $4.09 million in total purchases), up from $1.22 million in 2024. For most startups and growing companies, bonus depreciation is the more straightforward path: there's no dollar cap and no taxable income limitation. You can review the full 2026 limits at Section179.org's 2026 deduction guide.
| Rule | 2024 | 2026 |
|---|---|---|
| Bonus depreciation rate | 60% | 100% |
| Section 179 deduction limit | $1.22 million | $2.56 million |
| Section 179 phase-out threshold | ~$3.05 million | $4.09 million |
| Dollar cap on bonus depreciation | None | None |
| Taxable income limitation (bonus depreciation) | None | None |
The practical implication: the accrual-based depreciation schedules you'd normally track monthly may look very different this year for assets placed in service after January 20, 2025. Getting your fixed asset records right and keeping them current matters even more when the rules change mid-growth. Consult your accountant or tax advisor to determine which elections apply to your situation.
Accrual accounting recognizes revenues and expenses when they occur, not when cash changes hands. If you deliver a service in December but get paid in January, accrual accounting records that revenue in December. Cash accounting, by contrast, records only the January payment. The result is that accrual books give lenders, investors, and other stakeholders a more accurate picture of your business's economic activity over time.
Depreciation expense is the mechanism for spreading the cost of a fixed asset (a computer, cell phone, or office furniture) across its useful life, instead of recording the full cost upfront. The basic formula is: Cost Basis ÷ Useful Life. Each month, a portion of that cost flows from the balance sheet into the Profit & Loss statement as a depreciation accrual. The tricky part is tracking this for every asset with its own useful life, original cost, and disposal circumstances, which adds up quickly for companies with many fixed assets.
The One Big Beautiful Bill Act (OBBBA), signed in 2025, restored 100% bonus depreciation for qualified property placed in service after January 20, 2025. That means for calendar-year 2026, businesses can immediately expense the full cost of eligible assets instead of depreciating them over time. This is a major shift from 2024, when the bonus depreciation rate had dropped to 60%. The Section 179 deduction limit also increased to $2.56 million in 2026, up from $1.22 million in 2024.
The two main elections, bonus depreciation and Section 179, have different caps and income requirements. Bonus depreciation has no dollar cap and no taxable income limitation; Section 179 has a $2.56 million deduction limit in 2026 and phases out at $4.09 million in total purchases. Talk to your tax advisor about which election fits your situation. What matters for your books is that Puzzle can track either path accurately.
Puzzle automates fixed asset depreciation through its built-in depreciation module, which handles straight-line depreciation and posts monthly accruals automatically. Instead of maintaining separate spreadsheets for each asset's useful life, cost basis, and disposal status, Puzzle tracks it all and generates the corresponding depreciation entries, freeing you to focus on decisions and not calculations.
Puzzle's Power: Simplifying Accrual Accounting
At Puzzle, our mission is to simplify the complexities of depreciation and accrual accounting. Our platform automates the heavy lifting, freeing up your time to focus on what truly matters: growing your business.
