Importance of Depreciation Schedule and How to Create One

The purpose of a depreciation schedule is to chart the loss in value of an asset over the period you’ve assigned as its useful life, utilizing the accounting method you’ve selected. The goal of this depreciation schedule is to provide you with the ability to put into detail and track what you’ve already deducted and help you remain on top of the course. 

 

If you’d like to know more about how the depreciation schedule works and its importance, then just keep on reading! 

 

What is a Depreciation Schedule? 

 

A depreciation schedule calculates an asset’s depreciation expenses subjected to the date of purchase, useful life, initial cost, and tracks the start and finished accumulated depreciation or the value of the assets when it’s substituted. When it comes to accounting purposes, depreciation schedule usually involves the following details: 

 

  • date of purchase
  • description of asset 
  • expected life
  • cost
  • method of depreciation 
  • salvage value 
  • cumulative depreciation 
  • current year depreciation 
  • netbook value= cost – cumulative depreciation

 

You can’t write off right away the purchase of many fixed assets. Rather, you outlay the cost over its useful life, which is the anticipated amount of time the asset will produce revenue and be of usage to your business. 

 

Two Common Methods to Calculate Depreciation Expense 

 

  1. Straight-Line Method- In this method, you’ll need three columns. The first column lists the depreciation deduction (depreciation expense) you plan to get hold of each year. The number in this column be kept the same in every row, as you’ll be subtracting the same amount every year. Then the second column displays the depreciation that has accumulated at the end of every year. The third column writes down the book value of the asset at the end of each year. Take note that each row represents one year. 

 

  1. Reducing-Balance Method– Fundamentally, the only discrepancy here is that the first column (depreciation deduction) will differ from year to year as the accelerated values at the start of an asset’s useful life diminish. 

 

The Importance of Depreciation Schedule 

 

A depreciation schedule is used by businesses to describe and outline asset use to their stakeholders. Depreciation also pulls down the historical value of assets. Stakeholders can assess this information and identify what to expect replacement assets bought by a company. For instance, a company with design equipment or hardware will usually replace these items at some time throughout operations or during the existence of the business. When accumulated depreciation approaches the asset’s historical cost, a replacement investment may be coming up soon. 

 

Types of Assets You Can Depreciate 

 

If you have fixed assets that won’t be used within one year then those can be subject to depreciation. Fixed assets that can be depreciated are your factory equipment, computer, building, and furniture. Meanwhile, those assets that are intangible like patents or email lists you bought from a third party will be subjected to amortization, which is the term utilized for the depreciation of intangible assets. 

 

The biggest exception to depreciation island. You can’t depreciate land since it has an unbounded useful life. You don’t depreciate all of your assets. Some of your assets like inventory, office supplies, and low-cost items don’t earn the same treatment because they normally get used up in a year or less. 

 

How to Prepare an Asset’s Depreciation Schedule 

 

Every asset must have its own depreciation schedule, which you can combine onto another schedule that provides you with a glimpse of all your depreciable assets. Using a spreadsheet, you should be able to make your depreciation schedule. There are unlimited template options you can find on the Microsoft website. 

 

Let’s try to generate a business vehicle depreciation schedule. Above your depreciation schedule, you may record the following information: 

 

  • name of asset 
  • the date you’ve purchased the asset 
  • the cost of purchase 
  • salvage value 
  • depreciable value (cost of purchase – salvage value) 
  • useful life 
  • depreciable method 

 

The most vital aspect of the depreciation schedule is a table that outlines yearly depreciation for the asset. The table must include: 

 

  • initial asset net value 
  • progressive depreciation, which is the full amount depreciated on the asset 

closing asset net value 

 

For you to determine if you’ve created a correct depreciation schedule when your net book value at the end of the asset’s useful life equivalents your asset’s worth. 

 

Schedule Depreciation on the Very First Day 

 

It’s recommended that you set up an asset’s depreciation schedule immediately. When you arrange your small business taxes and create your annual financial statements, you may want to have your depreciation schedules set to go. 

 

Did you find this article helpful? Make sure to follow this guide when creating your depreciation schedule the next time your business produces a huge asset purchase. 

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