There are many methods of depreciation. The method of depreciation used should most closely match the expected usage of the asset. Common methods include straight line, accelerated, sum of the years digits, double accelerated and utilization rates.
When it comes to depreciation, no two businesses are alike. Unlike traditional straight line depreciation where the asset value is costed out to depreciation expense in equal increments over a given life expectancy, accelerated depreciation expenses the cost at higher values during the earlier accounting periods and at a lower amount towards the last half of the asset’s life expectancy.
There are various forms of depreciation used in the small business world. In general, depreciation is not required but it is advisable. A small business owner should understand depreciation and the various forms of how to calculate the deduction.
In the world of accounting, there are two types of expenses on the reports widely misunderstood. They are depreciation and amortization. I will try to help the novice gain an understanding of depreciation in this article.
