DECLINING-BALANCE DEPRECIATION METHOD Definition

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DECLINING-BALANCE DEPRECIATION METHOD is an accelerated depreciation method in which an assets book value is multiplied by a constant depreciation rate (such as double the straight-line percentage, in the case of double-declining-balance.). This depreciation method is allowed by the U.S. tax code and gives a larger depreciation in the early years of an asset. Unlike the straight line and the sum of the digits methods, both of which use the original basis to calculate the depreciation each year, the double declining balance uses a fixed percentage of the prior years basis to calculate depreciation. The percentage rate is 2/N where N is the life of the asset. With this method, the basis never becomes zero. Consequently, it is standard practice to switch to another depreciation method as the basis decreases. Usually the taxpayer will convert to the straight line method when the annual depreciation from the declining balance becomes less than the straight line.

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PRODUCTION BUDGET is used to propose how much you will manufacture (or buy in from suppliers) so that you can compensate for the demand (identified on your sales budget). If your maximum capacity for producing stock was 100 units for the month (due to available resources), it may not be necessary to produce this maximum (due to a lower demand) each month because it adds to expense and ties up finance. If you expect a high demand during a certain month(s), it may be that your manufacturing capacity cannot compensate. In which case, you may budget to manufacture excess in the months where you do not manufacture the maximum so that you can build up your supplies for the expected months with high demand. Alternatively, it may be a call to buy/hire more machinery/staff in that particular month to allow an increased capacity for production. See OPERATING BUDGET.

SEGREGATION OF DUTIES means assigning different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets. Segregation of duties reduces the opportunities for one person to both perpetrate and conceal errors or fraud.

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