Depreciation: Recognizing the Declining Value of an Asset







Depreciation is more than just an accounting necessity. It has a greater purpose and function. Depreciation recognizes and displays the –

  • The natural decline in value of assets’ fair market values (FMVs); and
  • Allocates the costs of your assets over the time you use them.

Financial Statements Effects

Depreciation affects both your company’s Balance Sheet and Income Statement. The value of the assets on your Balance Sheet reduce as the Accumulated Depreciation account grows. Depending on the depreciation method you choose, the amount you expense each year reduces the net profit on your Income Statement.

Tax Considerations

US tax laws seem to change yearly. Surprised? Probably not. The depreciation method you choose affects your tax liability–positively or negatively–depending on then-current tax regulations. Sometimes, the IRS even allows you to have one method on your books and another for tax purposes.

Confused yet? Ask The Carleton Group professionals to explain and advise you.

Unexpected Asset Value Changes

Rapid technological developments sometimes render some assets obsolete before their time. Accountants call this “impairment.” For example, you can’t give away that fancy dial-up modem now collecting dust. If your business still has some value attached to it, you need to record an impairment charge on your Income Statement as an added expense and reduction in asset value on your Balance Sheet.

The Carleton Group can help you make sense of depreciation realities. Getting the right depreciation advice about methods and tax consequences will help you manage your business better. Contact The Carleton Group can clear away depreciation fog, helping you see your company clearly.