Growing BusinessMONEY

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  • Understanding Depreciation
    Game Plan

    Creating a Depreciation Schedule

    If you’ve familiarized yourself with the topics in the previous two sections, you’ll be aware of the different methods for calculating straight-line vs. reducing-balance depreciation. A depreciation schedule charts the loss in value of an asset over the period you’ve designated as its useful life, using the accounting method you’ve chosen.

    The point of having a depreciation schedule is to give you the ability to track what you’ve already deducted and stay on top of the process. What follows is one simple way to accomplish this.

    If You’re Using the Straight-Line Method
    You’ll need three columns:

    • The first column registers the depreciation deduction (aka depreciation expense) you plan to take each year. The number in this column will remain the same in every row, as you’ll be deducting the same amount every year.
    • The second column shows the depreciation that has accumulated at the end of each year.
    • The third column logs the book value of the asset at the end of each year.

    Each row represents one year.

    If You’re Using the Reducing-Balance Method
    Basically, the only difference here is that the first column (depreciation deduction) will vary from year to year as the accelerated values at the beginning of an asset’s useful life diminish.