Normal Depreciation

Depreciation helps a company reduce fiscal liabilities.

Accounting rules and fiscal guidelines allow a company to depreciate fixed assets through straight-line or accelerated methods. In a straight-line or normal depreciation method, an accountant records the same depreciation amounts every quarter or year.

Definitions

In accounting parlance, depreciating a fixed asset means spreading its cost over the number of years the owner intends to use it. A fixed asset, or capital asset, is a resource that a firm intends to use for more than 12 months and may be land or equipment.

Depreciation and Useful Life

A company depreciates an asset over its useful life. An asset's useful life is the number of years over which senior management intends to use the asset in operating activities.

Depreciation and Financial Analysis

Normal depreciation procedures affect a company's balance sheet. Depreciating a capital asset means lowering the asset value, and the reduced value decreases the total amount of long-term resources that a company reports at the end of the period. Long-term asset values are often important in lending transactions. Depreciation accounting entries also lower a company's net income over a period.

References

• Investopedia: Depreciation
• Investopedia: Depreciation: Straight-Line Vs. Double-Declining Methods