In This Chapter
Understanding depreciation and why you do it
Exploring depreciation methods
Looking at depreciation’s tax impact
Pulling together depreciation schedules
Entering depreciation expenses in the books
All businesses use equipment, furnishings, and vehicles that last more than a year. Any asset that has a lifespan of more than a year is called a fixed asset. They may last longer than other assets, but even fixed assets eventually get old and need replacing.
And because your business should match its expenses with its revenue, you don’t want to write off the full expense of a fixed asset in one year. After all, you’ll certainly be making use of the asset for more than one year.
Imagine how bad your income statement would look if you wrote off the cost of a $100,000 piece of equipment in just one year? It would sure look as if your business wasn’t doing well. Imagine the impact on a small business — $100,000 could eat up its entire profit ...