Depreciation expense is the bookkeeper's way to account for the wear and tear on assets over time. As equipment, like tractors, are used their value goes down and must be written off to maintain the most accurate value of the books (book value). The most common depreciation methodology is straight-line depreciation; however, this number must be divided by 8,766 hours to come up with an hourly figure.
Determine the cost of the tractor. This is the price you originally paid for the tractor.
Determine the useful life of the asset, which is how many years the asset will be of use to your business.
Determine the annual depreciation expense.The expense equals the cost of the tractor divided by the useful life of the tractor. For example, if the tractor costs $50,000 and you believe the useful life of the tractor to be five years, then the annual depreciation expense is $50,000 / 5 or $10,000.
Divide the annual expense by the number of hours in a year. The equation is: $10,000 / 8,766 hours or $1.14 per hour.
Multiply by the number of hours used to calculate the total depreciation expense. For instance, if the tractor is used for five hours, then the depreciation expense is $5.70 ($1.14 x 5).