Learn Depreciation for FREE!
This page contains our free online depreciation course. It will teach you the basics of depreciation and how to use depreciation in accounting.
The Course Covers:
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The basics of depreciation
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Depreciation methods
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The depreciation journal entry
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How to depreciate assets
Course Modules:
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Lesson 1: Depreciation Basics
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Lesson 2: Straight-Line Depreciation
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Lesson 3: Reducing Balance Depreciation
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Lesson 4: The Depreciation Journal
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Lesson 5: Accumulated Depreciation
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Lesson 6: The Fixed Asset Register
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Bonus Lesson: Disposing of Assets
To start the depreciation course, scroll down.
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This course is FREE, and no registration is required!
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Jump to:
FREE Online Depreciation Course
Part 1: An Introduction to Depreciation
Module overview:
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Course Overview
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What is depreciation
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Why is depreciation needed
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Which assets are depreciation
What is depreciation?
Depreciation is the process by which an asset loses value over time.
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Most tangible assets lose value. For example, if a company were to buy a new van today, it would likely be worth less in a year. It would be worth even less in five years. This is because the asset is older, has more mileage, and is more used. This is called wear and tear. Because of wear and tear, assets decrease in value over time.
In accounting, why is depreciation needed?
The value of a business's assets is shown on the balance sheet.
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The value of the balance sheet must accurately reflect the asset's worth. In accounting, if depreciation was not used, the assets would always show at cost price, no matter how old they were. This would not be accurate. Depreciation is used to bring down the value of the assets in the accounts in line with their actual value.
Which assets are depreciated?
In accounting, bookkeeping, and finance, tangible assets are usually depreciated. This includes:
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Motor vehicles
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Office equipment
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Computer equipment
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Tools and other work equipment
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Machinery
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Fixtures and fittings
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Land and property are not usually depreciated. These assets generally increase in value over time, not decrease. This is called appreciation.
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Cash and stock are not depreciated.
Tangible assets vs. Intangible assets
Tangible assets such as machinery or equipment can be physically touched and shown. Intangible assets such as websites, patents, contracts, software, images, and goodwill, can't be physically touched and shown.
Part 2: Straight-Line Depreciation
Module overview:
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Depreciation methods
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What is straight-line depreciation
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Straight-line depreciation examples
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And more...
Depreciation Methods
Assets are depreciated using one of two methods: straight-line and reducing balance.
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These methods account for the depreciation (wear and tear) of assets over a period of time.
Straight-Line Depreciation Explained
Straight-line depreciation accounts for depreciation over an agreed -upon period of time, based on an asset's useful life. The depreciation amount is fixed, meaning the asset will incur the same amount of depreciation each year until its value is zero or valued at the expected value at the end of its useful life. This is called salvage value.
For example, if a new computer is expected to have a useful life of four years and cost 1,000, the asset will be depreciated at 250 a year for four years. Confused? More examples are below.
Straight-Line Depreciation Formula
The formula for straight-line depreciation is:
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(Purchase Price - Salvage Value)/Useful Life​ = Straight-Line Depreciation
Straight-Line Depreciation Examples
1. An office desk is purchased for 800. It is expected to last eight years in the business (useful life) and then be disposed of for nil (salvage value).
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Applying the formula, the calculation will be:
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​(800-0)/8 = 100. That is 100 a year.
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The asset will be depreciated at 100 a year for eight years, reducing its value to nil after eight years.
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2. A motor vehicle is purchased for 25,000. It is expected to last five years in the business (useful life) and then be sold for 10,000 (salvage value).
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The calculation will be:
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(25,000 - 10,000)/5 = 3,000. That is 3,000 a year.
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The asset will be depreciated at 3,000 a year for five years, reducing its to 10,000 after five years.
Part 3: Reducing Balance Depreciation
Module overview:
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What is the reducing balance depreciation method
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How to use the reducing balance method
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Examples of reducing balance depreciation
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And more...
Coming soon...
Coming soon...
Part 4: The Depreciation Journal
Module overview:
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Accounting for depreciation
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Depreciation by category
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Month-end and year-end depreciation
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And more...
Coming soon...
Coming soon...
Part 5: Accumulated Depreciation
Module overview:
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Accumulated depreciation explained
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Depreciation categories
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Examples
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And more...
Coming soon...
Coming soon...
Part 6: The Fixed Asset Register
Module overview:
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The basics of the fixed asset register
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Fixed asset register template
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Using a fixed asset register
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And more...
Coming soon...
Coming soon...