How will this tool help?

Dividing the purchase price of a fixed asset (property used in a productive capacity which will benefit the enterprise for longer than one year) over several years makes your financial picture more accurate. Depreciation (the process of deducting the purchase price of a fixed asset over several accounting periods) matches the cost of a fixed asset with the revenues that it helps generate over time. This accomplishes one of the primary aims of accounting — to illuminate the costs of doing business by tying expenses to associated revenues.

This Decision Tool will help you:

• Calculate and compare different methods of depreciation.
• Allocate fixed asset costs according to generally accepted accounting principles (GAAP).
• Maintain a record of depreciation information for each fixed asset.
• Enter depreciation expenses in QuickBooks on a monthly, quarterly, or annual basis.
• Understand your accountant's recommendations.

This tool will help you understand depreciation and make some decisions about it. It's not meant to replace the advice of a good accountant, though — you will still benefit from an expert opinion applied to your unique business situation.

This tool concentrates on book depreciation, not tax depreciation. Book depreciation is often required or preferred by loan officers, bonding agents, and investors. If your business shares financial information with external parties, you may need to prepare financial statements using this method. Even if you only use financial statements internally, book depreciation can help you get a more accurate financial picture by matching fixed asset costs with associated revenues.

However, you may not  need this tool if you:

• Do not have any fixed assets.
• Don't anticipate acquiring any fixed assets for your business.
• Prefer to leave decisions about depreciation entirely up to your accountant.