# Depreciation methods

> Straight-line, declining balance and units of production side by side, and why the tax return keeps a schedule of its own.

Source: https://lopifi.com/learn/fixed-assets-and-depreciation/depreciation-methods
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**Which depreciation method should a startup use, and why does tax depreciation differ?** Straight-line, declining balance and units of production side by side, and why the tax return keeps a schedule of its own.

**Straight-line**
- Pro: The same charge every month
- Pro: Easy to schedule, check and explain
- Con: Ignores that some assets lose usefulness faster early on
- Best for: Assets used evenly — shelving, furniture, most vehicles

**Declining balance**
- Pro: Front-loads the expense into the years of heaviest use
- Con: Uneven charges to explain in every flux review
- Con: More arithmetic, and a switch to straight-line near the end
- Best for: Assets most productive when new, like computers

**Units of production**
- Pro: Expense follows actual use, month by month
- Con: Needs a usage count every period
- Con: Total units must be estimated up front
- Best for: Machines or vehicles whose wear follows output or miles

Three depreciation methods. GAAP asks for a systematic and rational one that fits how the asset is used up.

> **Book depreciation is not tax depreciation.** The tax return uses its own lives and methods, and elections such as [Section 179](https://lopifi.com/md/glossary/section-179-expensing) and [bonus depreciation](https://lopifi.com/md/glossary/bonus-depreciation) can deduct an asset's cost far faster than the books charge it. The gap is a [temporary difference](https://lopifi.com/md/glossary/temporary-difference) that unwinds over the asset's life. Keep the two schedules separate; the compliance track covers the tax side.

## Where this page's rules come from

- [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) — Depreciation allocates cost; it does not measure value (codification)
- [Wikipedia, “Depreciation”](https://en.wikipedia.org/wiki/Depreciation) — Depreciation (reference)

## Read further

- https://lopifi.com/md/journal-entries/depreciation
- https://lopifi.com/md/differences/depreciation-vs-amortization
- https://lopifi.com/md/tools/depreciation

- **Track:** [Accounting](https://lopifi.com/md/learn/accounting)
- **Part of:** [Fixed assets and depreciation](https://lopifi.com/md/learn/fixed-assets-and-depreciation) — 4 min
- **Terms taught:** [Depreciation](https://lopifi.com/md/glossary/depreciation), [Straight-line](https://lopifi.com/md/glossary/straight-line), [Section 179 expensing](https://lopifi.com/md/glossary/section-179-expensing), [Bonus depreciation](https://lopifi.com/md/glossary/bonus-depreciation), [Temporary difference](https://lopifi.com/md/glossary/temporary-difference)
- **Previous:** [Fixed assets and depreciation](https://lopifi.com/md/learn/fixed-assets-and-depreciation)
- **Next:** [Selling a fixed asset](https://lopifi.com/md/learn/fixed-assets-and-depreciation/selling-a-fixed-asset)
- **The course:** https://lopifi.com/md/learn