Essay On Depreciation Method

The most common method of depreciating assets for financial statement purposes (as opposed to the method used for income tax purposes) is the straight-line method. Under this depreciation method, the depreciation for each full year is the same amount.

Accelerated depreciation is any method of depreciation used for accounting for income tax purposes that allows greater deductions in the earlier years of the life of an asset.

It is important to remember that depreciation is an attempt to match expenses with revenues (matching concept). Accountants try to spread the cost of the asset over the service life of the asset. Do not make the mistake of thinking that depreciation is an attempt to value the asset. Depreciation and market value have

Accounting methods began to be developed during the industrial revolution. Each company and industry made up their own way of doing accounting. Sometimes an accounting method was developed because the accountants thought the method would best match revenues and expenses. Other times accountants would make up a depreciation method because the method would help management reach an objective such as making the net income look better or worse than it otherwise would look. Sometimes the government makes up depreciation methods in order to stimulate or dampen the economy and for other political reasons. By tradition, many of these accounting methods are accepted and still in use today.

Since the objective of depreciation is to match revenues and expenses, it is probably best to choose the method that meets that requirement. Sometimes a machine will be more productive in the early years and less productive in the later years. An accelerated method may be best in cases such as that. Although matching revenues and expenses is important, accountants are expensive and the cost-benefit rule comes into play. For that reason, many accountants will just use a straight-line method to keep things simple ("close