As a business owner, there are assets that you work with to help you run your business. Whether we are talking about property, buildings, cars or other assets, they are all part of the business. It shouldn’t come as a surprise that you have to account for these assets. Depreciation is a way for businesses to allocate the cost of fixed assets to the specific years that the business used those assets. There are a few different methods to get this done. Propel Your Accounting is here to talk about the different methods that are used to depreciate an asset in business.
Methods Used to Depreciate Assets
We would like to take a look at the four major methods that are used to depreciate assets.
– Straight Line Method: When you decide to use the straight line method, you will depreciate the property at an equal amount spanning the years of its useful life. First, you will subtract the asset’s salvage value from its cost. This will give you the amount to be depreciated. Next, you will divide that amount by the number of year’s of its useful lifespan. And finally, you will divide that by 12 so that you have its monthly depreciation.
– Declining Balance Method: This is a more complicated method, to be sure. Using one of two variations which include the double-declining method and the 150% eclipsing balance method. The amount will change each year with either of them. The formula for this method is the annual depreciation equals 1 lifespan multiplied by the remaining book value. To get the monthly depreciation, divide that number by 12.
– Sum of the Year’s Digits (SYD) Method: The SYD method is a sum of the asset’s expected life and adds together the digits for each year. This is a faster way to determine depreciation. For instance, if an asset has a lifespan of five years, the equation would like 5+4+3+2+1 which is a total of 15. Each of the digits is then divided by the sum to determine the percentage of depreciation.
– Modified Accelerated Cost Recovery System (MACRS) Method: Many businesses use this method for tax purposes. This method allows for larger depreciation and larger write offs at tax time. This is a complex system to determine depreciation and it is always wise to turn to an accountant to help you with this process. They will help you calculate it all so that you aren’t making mistakes that could be a problem or your taxes.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you are trying to determine the depreciation of your assets, you can turn to Propel Your Accounting to help you get it sorted out. We work to lower the tax bills for individuals and businesses as we help them prepare their taxes. It is always beneficial to have a tax advisor present to help you get it all sorted out and to maximize your profits. Call us today!
