What is depreciation in accounting?
Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting its gradual loss of value over time, due to wear and tear, obsolescence, or usage. This is a strategy commonly used in tax and investment planning.
Cool. So, in simple terms, it means the cost of something (like a car, computer, or even manufacturing equipment, etc.) is spread out over the time it's used, assuming it loses value as it gets older. Instead of reporting the entire cost during one fiscal year, you would spread out the cost over the lifespan of the item. When dealing with property, which often appreciates in value, owners can still deduct a portion of the property's cost each year.
If you feel out of your element, don't worry, we're letting Adam explain it.
Listen up
In this episode of BIF Bites, Adam channels his inner Lebowski to explain depreciation in business accounting. Specifically, you're going to learn all about
- Straight-line depreciation and the Modified Accelerated Cost Recovery System (MACRS)
- Half-Year Convention with examples of common useful lives for different assets
- How financial planners can use depreciation to help your clients
And Adam is really going to tie the podcast together with his own experience in rental property depreciation.
The BIF Crew Abides.
