Depreciation is the reduction of the value of an asset over several years. The amount of deprecation over the time of the asset’s life is presented in a table called a “Depreciation Schedule.”
When you buy an asset, you should expense the cost of using the asset, basing the expense on the span of time that you use the asset. This expense is the depreciation expense. Each asset will depreciate all its value by the time that it needs to be replaced. To know the amount of depreciation each year, accountants will make a depreciation schedule, where the depreciation amount or expense is calculated.
Building schedules for depreciation is a multi-step process, but is not as difficult as you may think, most especially if you are an experienced accountant.
Here are some simple ways to build good depreciation schedules:
Use a Depreciation Schedule Spreadsheet
A spreadsheet program can help you easily create a depreciation schedule that already calculates the annual deprecation for you. It is an effective way of building an accurate depreciation schedule without spending a long time using your calculator. With manual calculation there are more chances for errors and also it is very time consuming.
Choose a Depreciation Method
In choosing a depreciation method to use, consider always the company’s guidelines and regulations, and on how the asset is being used. There are a lot depreciation methods, some commonly used methods are straight-line method and reducing balance method.
Calculate Depreciation for the First Year
Once you have chosen a depreciation method, you can calculate the amount of depreciation using that method. Determine the asset price and salvage value, and calculate the depreciation amount for the first year. You can use your depreciation spread sheet for an accurate and easy calculation.
Calculate the Remaining Years’ Depreciation
It is also important to calculate the depreciation of the remaining years. But your calculation here is based on the process that you did on your first year’s calculation. Use the same method to avoid misconceptions and inaccuracy of amounts.
Building depreciation schedules can be made easy by working with a firm that provides accounting services. You just need to come up with the right choice of depreciation method; the method that most closely reflects the life of the asset. Choosing an overly complicated method will just give greater chances for errors.
