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Depreciation: Summary of Main Methods definitions

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  • Depreciation
    Allocation of a fixed asset's cost over its useful life, reflecting wear and tear rather than cash outflow.
  • Straight Line Method
    Depreciation approach that allocates an equal expense amount to each year of an asset's useful life.
  • Double Declining Balance
    Accelerated depreciation method assigning higher expenses in early years and less in later years.
  • Units of Production Method
    Depreciation method based on actual asset usage, such as miles driven or units produced.
  • Cost
    Initial amount paid to acquire a fixed asset, forming the basis for depreciation calculations.
  • Useful Life
    Estimated period over which a fixed asset is expected to provide economic benefits.
  • Residual Value
    Estimated amount expected to be recovered at the end of an asset's useful life.
  • Non-Cash Expense
    Accounting charge that does not involve an actual cash outflow, such as depreciation.
  • Net Book Value
    Asset's recorded cost minus accumulated depreciation, not necessarily matching market value.
  • Depreciable Base
    Total amount of an asset's cost minus its residual value, subject to allocation over its useful life.
  • Depreciation Expense
    Portion of an asset's depreciable base allocated to a specific accounting period.
  • Accelerated Depreciation
    Depreciation approach that allocates higher expenses in the early years of an asset's life.
  • Taxable Income
    Amount of income subject to taxation after deducting allowable expenses, including depreciation.
  • Modified Accelerated Cost Recovery System
    IRS-approved accelerated depreciation system, similar to double declining balance, used for tax purposes.
  • Fixed Asset
    Long-term tangible resource used in operations, subject to depreciation over its useful life.