From the course: Finance and Accounting Tips

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Different depreciation methods

Different depreciation methods

From the course: Finance and Accounting Tips

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Different depreciation methods

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- In accounting, depreciation is allocating the cost of an item, an asset, over the time period that is benefited by that asset. For example, a company purchases a piece of machinery with which to produce products that can be sold, thereby generating revenues. Part of the cost of the revenue being generated, because of that machine, is the cost of that machine. Somehow, the cost of that machine must be allocated and matched to the revenue that it's generating. That is what depreciation is in an accounting context. The systematic allocation of an asset's cost over its estimated useful life. The objective of depreciation is not to estimate an asset's decline in value. It's objective is to match costs with revenues. How to do that? Match costs with revenues? Well to do that matching, companies use what are called depreciation methods. There are two that gets the most attention: Straight line and MACRS. The Straight line method of depreciation results in the same amount being depreciated…

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