Depreciation accounting is writing off a proportion of the fixed assets to the balance sheet over a period. Most assets are normally depreciated over a period of 3 or 5 years depending on the type of asset. Fixed assets include items like furniture, computers and machinery that have a useful life of more than one year.
Depreciation Accounting Methods
There are two main methods which your business can choose to depreciate the asset:
Once your company has decided which method to use, it is worth using the same method each year. If you are unsure which method your company should use, you may need to speak to your accountant.
There are specific software packages to calculate your depreciation. If you are using accounting software, have a look to see if it has the feature, this may save time. We have also developed a depreciation schedule, which you can download and use.
How to calculate depreciation
Are you having problems on calculating your depreciation, then why not use one of the depreciation calculators. You will need to know which method you are planning to use, the cost of the assets and the useful life.
Accounting for Depreciation
In your accounting records, when you purchase a fixed asset, you will need to post the value of the fixed asset to the balance sheet in the accounts. On either a monthly basis or annually you can post the depreciation value to the balance sheet. The fixed asset will then reduce in value over a period.
Depreciation Accounting Example
Company ABC purchases a new computer costing £498. The computer has a useful life of 3 years, and the company is using the straight-line method.
The monthly depreciation figure is £498 divided by 3 equals £166 per year.
Balance sheet for ABC 1st year
Balance sheet for ABC 2nd year
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