Differentiating Depreciation Methods

Sederick Nelson

ACC/230

June 22, 2014

Jayme Edin

Straight line method of depreciation relies on the passage of time in determining how the value of an asset depreciates over a period of time. Accelerated depreciation method allows companies to write more their assets in the earlier years and less in the later years. There are different depreciation methods that require different rates to be calculated, not every asset calls for the same depreciation method because the rates of every asset is not the same and a company can gain or lose more depending on which depreciation method is used. Companies use different depreciation method for tax and financial reporting is because tax reporting has its own set of rules and regulation that are to be followed. Financial reporting rules fall under the (GAAP) General Accepted Accounting Principles and their rules are different. Advantages and disadvantages of using different depreciation methods, when using straight line depreciation an accountant knows exactly how much will be expensed on the item each year until it reaches the end of its useful life. The profits for the future can be determined easily because of the depreciation of certain assets. Straight line does not take into fact that assets lose value more quickly in the early years which makes the asset look more valuable on the books but not to the lenders. Equipment and buildings declines in the later years and you still have to write it off as the same amount you did in the early years, which is a