DEPRECIATION Definition

DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful live, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business tax expense but straight line is chosen for its financial reporting purposes.

Learn new Accounting Terms

BOOK(S) when used as a noun refers to journals or ledgers (for example: cash book). When used a verb it refers to the recording of an entry (for example: to book the sale).

IDLE TIME is unproductive time caused by, e.g., machine breakdowns, shortages of material or inefficient scheduling. The cost of idle time is usually classified as an indirect rather than a direct cost.

Suggest a Term