A Look at Depreciation Schedules

May 282010

Whether you are looking for a depreciation schedule for tax reporting purposes or for financial accounting purposes, it is good to know that there are several options available. It is impossible to know exactly what people are looking for when they come to this site, but I’m guessing that most are looking for some sort of template to help them for tax purposes.

If you are looking for a depreciation schedule and you are doing it for tax purposes, I would first check your income tax preparation software. These days most of this software comes loaded to help you calculate the correct amount of depreciation.

The following consists of what I would do if I had no tax software to aid me in calculating depreciation and were trying to fill out a depreciation schedule for my company. Note that you should probably seek advice from a professional tax accountant or tax lawyer before proceeding. I would go to the IRS webpage on depreciation: Pub 946. I would read through all the material that was applicable to me. If you already know your way around depreciation, and are just looking for the amount of time that you are supposed to be depreciating each asset I would look at this part of Pub 946 on how to use the depreciation tables. This section will tell you where your class life in years and it will also point you in the right direction for any other information you will need.

After I had the information I would simply open up Excel, click on the windows symbol, click on new, and in the search section in the upper-middle part of the window I would type in “depreciation schedule”. This will give you a bunch of good options already preformatted in Excel. You could probably whip one of these up on your own, but why not use one that is already tried and proven.

There is a ton of information in Pub 946, so I personally wouldn’t try conquering it by myself unless I was really feeling ambitious. Chances are you tax accountants out there will already know a lot of this and will just need to brush up on a few individual items.

Now, if you came to this page simply looking for a depreciation schedule to track your assets for your financial book purposes, I would also recommend one of the preformatted depreciation spreadsheets. Excel claims to be able to perform several of the different types of deprecation; i.e. straight-line, double-declining, and 150% declining. But I’ve also read some literature out there that says some of their functions are slightly off, so you’ll want to pay close attention when simply relying on their worksheets.

Finally, if all these spreadsheets have you in a bundle, you might be happy to hear that there are several companies out there who specialize in creating depreciation software. A quick Google search will lead you to some of these companies.

Depreciation software has some advantages over just your average spreadsheet in that it is created by professionals, has more controls in place, and keeps your information in one central location.


Depreciation Schedule Info.

May 062010

The depreciation schedule is simply a schedule that shows the original purchase price of the equipment and at what rate it is being depreciated. These schedules can be handy for managers and accountants when

making asset decisions. They are perhaps most often used for IRS tax purposes. This article will look at depreciation schedules both from a management point of view and a tax point of view.

Accounting rules require businesses to depreciate their assets. Basically depreciation means taking an expense each year for an asset like equipment. When an organization buys a piece of equipment they do not mark it down as an expense immediately; they usually capitalize the asset. The journal entry will look something like this:

Equipment:  XXX
                        Cash: XXX

However it would not make sense to never count this as an expense, so usually at the end of every accounting period an expense is made.

Depreciation Expense: XXX
                    Accumulated Depreciation: XXX

This amount is netted against the equipment to show the book value of the equipment. The depreciations schedule shows all of these entries for any given year. You could also make a pro-forma depreciation schedule to look at future period depreciation.

If you are looking for a sample depreciation schedule then I’ve listed an example below:

Capital Asset Depreciation Schedule Template:
This is a straight-forward template that you can use right on Microsoft Excel.

Also, another excellent resource for depreciation schedules includes opening up Microsoft Excel, clicking on the Windows logo (for excel 2007), click on new, and then in the search menu type “depreciation schedule”. They have a bunch of templates that should get you on the right track.

As you can see, there isn’t a lot involved in these schedules. They are however very useful because they allow a company to make better decisions about asset purchasing and disposal. All accountants know that depreciation expense lowers net income. And well-informed investors know that net income is the most looked at number when people are making investment decisions.

These schedules are also very useful for tax purposes. In fact, that may be one of the main reasons they are used. If you want to learn more about how to do MACRS, I would recommend this IRS page on MACRS. Using an excel template from Microsoft along with the information from the IRS and you should be able to get depreciation squared away for tax purposes.

Different Ways to Depreciate

It turns out that it is not up to you as the business owner to decide what the depreciation amount should be. Otherwise owners would abuse this to increase net-income and the idea is to give external stakeholders a good idea of the financial situation.

Straight line depreciation is the easiest method to use, and subsequently the most used depreciation technique. Basically you determine the life of the asset and take an equal amount of depreciation for each year of the assets life. So if you have a 10 year asset with a starting value of 100, then you depreciate it 10 each time.

Other popular methods of depreciation include double-declining balance, sum-of-years, and units-of-production. I could bore you with the details here, but if you are really interested in seeing how these work check out the wikipedia entry on depreciation.

Unfortunately depreciation turns out to be quite the complicated subject. Companies will often depreciate one way on their accounting books and a different way on their tax books. This leads to a mind-numbing reconciliation process at the end of the year.

Tips on depreciation:

The IRS does give you some leeway in determining which depreciation method you use. You have to use MACRS, but they have different methods of MACRS. If you think that your company will have a higher net income in the future then it may be better to depreciate less up front so that you can depreciate more in the future. Higher depreciation expense when you are in a higher tax bracket could save you some money.

Selling off an asset may gain you cash, and it may also save you from having to take depreciation expenses in the future. Obviously if you need the asset, don’t sell it, but if you don’t need it this can be a way to make your company look better financially.

If you’re a medium to large sized company and you are looking for something a bit more robust then we suggest Sage’s depreciation software. Yes, they actually make software that’s only purpose is to deal with asset depreciation. You can find out more about it here: http://www.sagefas.com/products/asset_accounting/commercial

If you completely want to avoid having to worry about depreciation schedules, then you can always just have an outside firm provide your accounting services for you. This is a good idea for those people who don’t want to try and understand all of the different accounting principles.

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