Depreciation is an accounting concept that helps accountants to keep track of office equipment values on the balance sheet. Every year, as office equipment is used, accountants will write off a certain portion of this usage as a depreciation expense. The expense is deducted from net income even though it is a non-cash transaction. As the office equipment is expensed, the value of total assets decreases on the balance sheet. The most popular way to depreciate assets is with the straight line depreciation method.
Identify the cost of equipment. This is the price you paid, not the value of the equipment. For instance, if you purchased a $1,000 computer for $550, the cost is $550.
Decide on the useful life of the equipment. The useful life may change depending on the type of office equipment. Use your best judgment. For instance, a stapler may have a different useful life than a computer. Assume the computer has a useful life of five years.
Determine the salvage value. Some assets can be sold for their parts even after their useful life. For instance, computers can often be sold for scrap metal. Assume the salvage value of the computer is $50.
Calculate the depreciation expense. Subtract the salvage value from the cost of the equipment and then divide by the useful life. For this example, the calculation is $550 minus $50 divided by 5 or $100.
Depreciate the equipment by the amount of the depreciation expense every year until the full cost of the equipment is written off.
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