A depreciation schedule or chart helps businesses keep track of long-term assets and gives a look at how they’ll depreciate over time. It calculates an asset’s depreciation expenses based on the date of purchase, initial cost, useful life (how long a company intends to use it), and tracks beginning and ending accumulated depreciation, or the value of the assets when it is replaced.
For accounting purposes, depreciation schedules typically include the following information:
- Description of asset
- Date of purchase
- Expected life
- Depreciation method
- Salvage value
- Current year depreciation
- Cumulative depreciation
- Netbook value = Cost – Cumulative Depreciation
The two most common methods used to calculate depreciation expense are the straight-line method and the accelerated method.
A straight-line method subtracts the salvage value of an asset and subtracts it from the initial cost. The result is then divided by an estimated number of useful years and the business expenses an equal amount of depreciation for each year.An accelerated method writes off depreciation costs more quickly so to minimize taxable income.
Which calculation a company uses affects the income statement and balance sheet in different ways. In other words, how a company uses depreciation is important for analyzing its authentic bottom line.
Why is a Depreciation Schedule Important?
Businesses use depreciation to report asset use to their stakeholders. Deprecation also brings down the historical value of assets. Stakeholders can review this information and know when to expect replacement assets purchased by a company. For example, a company with design equipment or hardware will often replace these items at some time during operations or during the life of the business. When accumulated depreciation nears the asset’s historical cost, a replacement purchase may be coming up soon.