Depreciation methods
Straight-line, declining balance and units of production side by side, and why the tax return keeps a schedule of its own.
Straight-line
- Good at
- The same charge every month
- Easy to schedule, check and explain
- Watch for
Ignores that some assets lose usefulness faster early on
- Best for
- Assets used evenly — shelving, furniture, most vehicles
Declining balance
- Good at
Front-loads the expense into the years of heaviest use
- Watch for
- Uneven charges to explain in every flux review
- More arithmetic, and a switch to straight-line near the end
- Best for
- Assets most productive when new, like computers
Units of production
- Good at
Expense follows actual use, month by month
- Watch for
- Needs a usage count every period
- Total units must be estimated up front
- Best for
- Machines or vehicles whose wear follows output or miles
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 360-10-35-4 (opens in a new tab)Depreciation allocates cost; it does not measure valueFree after registration
- Background reading — not an authority
- Wikipedia, “Depreciation” (opens in a new tab)DepreciationFree to read
The full map is in US GAAP, and where these rules come from.
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- DepreciationSpreading the cost of a fixed asset over the periods it serves
- Straight-lineAllocating an amount evenly across the periods it covers — cost less salvage value divided by useful life for depreciation; equal monthly amounts for a prepaid or a ratable subscription. One systematic and rational method among several
- Section 179 expensingAn election to deduct the cost of qualifying equipment and software in the year it is placed in service — up to $2,560,000 for 2026, phased out dollar for dollar above $4,090,000 of purchases, and limited to taxable business income
- Bonus depreciationAdditional first-year tax depreciation under §168(k) — 100%, permanently, for qualified property acquired after January 19, 2025, under the OBBBA. Not limited to taxable income, so it can create an NOL; book depreciation is unaffected, creating a temporary difference
- Temporary differenceA difference between an asset or liability's tax basis and its book carrying amount that will reverse in future years — the source of deferred taxes
See also
- Depreciation scheduleStraight-line, double-declining or SYD schedules, with a first-period convention.
- Journal entry for depreciationEach period, debit Depreciation expense and credit Accumulated depreciation for the period's charge. The asset account keeps its original cost; accumulated depreciation, a contra-asset, grows until net book value reaches salvage value.
- Depreciation vs amortizationDepreciation spreads the cost of a tangible asset over its useful life. Amortization does the same for an intangible one, and for loans and prepaids it also means paying a balance down over time.