When you buy an asset for your business, you must expense the cost of using that asset over the period of time that you use it. This expense is called depreciation. Every asset will eventually depreciate all of its value, at which time it should need to be replaced. To figure out how much a item needs to be depreciated each period, accountants come up with a depreciation schedule.
Items you will need
- Depreciation method
- Spreadsheet program
- Asset cost
Decide on which method of depreciation you will use for the asset. The three recognized methods are straight line, declining balance, and sum of years. Any one of these will work. However, straight line is the easiest. If you decide to use the others, consult an accountant.
Build a depreciation table in a spreadsheet program. The top row should be labeled "Year (end of)," "Value of Asset," "Depreciation Expense" and "Cumulative Depreciation" (the total amount of deprecation the asset has up to that point).
Type the years in the "Year (end of)" column, starting with the current year, for the duration the asset will be depreciated. For example, if the asset will be depreciated for 5 years starting in 2009, your "Year (end of)" column would contain "2009," "2010," "2011," "2012," "2013," "2014."
Next to the current year, in the "Value of Asset" column, type the full value of the asset. Along that same row, type "0" for the "Depreciation Expense" and "Cumulative Depreciation" columns.
In the next row, for the first year, type the amount you will be depreciating in the "Depreciation Expense" column, based on the depreciation method you chose. Subtract that number from the value of the asset and type the difference in the "Value of Asset" column. Finally, add the "Depreciation Expense" value to the "Cumulative Depreciation" value from the previous year and type that number in the "Cumulative Depreciation" column (for the first year it should be the same as the deprecation expense).
Continue down the table, filling in each row like you did the first one until you have completely filled in the table. The value of the asset when you have finished should be the salvage value that you decided on for the asset. Many times this is $0, but not always.
If you are deprecating by month instead of years, just divide your yearly depreciation by 12 and fill in each row that way. The process is the same.
Make sure this table is accurate. If there are inconsistencies, it may result in you expensing too much or too little and will make the income statement and balance sheet incorrect.