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.