Accounting Dictionary

Depreciation Methods

There are four main depreciation methods for financial statements: Straight line, Double Declining Balance, Units of Output, and Specific Identification. A fifth depreciation method, Sum of the Years’ Digits is rarely used. The principal depreciation method used on tax returns is MACRS.

Straight line is the most widely used method. Specific Identification is very costly and is mainly used by businesses that have very few items to sell and those items are very expensive. Double declining balance tends to yield the lowest net income. The Units of Output method is used when machine usage varies widely from year to year.

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