DEPRECIATION 🚗 🤖 🏭 An accounting method used to allocate the cost of tangible assets (such as buildings. machinery, and vehicles) over their useful lives. It represents the systematic reduction in the value of an asset due to wear and tear, obsolescence, or other factors. Depreciation happens to TANGIBLE Assets (you CAN touch them) Examples: →Car 🚘 →Equipment 🤖 →Buildings 🏭 3 DEPRECIATION METHODS 1️⃣ STRAIGHT - LINE The most common and easiest method to calculate depreciation. To use this method of depreciation, you need to divide the cost of an asset by the useful life of an asset (in years). 🔎 FORMULA: Cost / Useful Life 2️⃣ DECLINING BALANCE Used to calculate large depreciation expenses or assets that quickly lose value. Multiply the opening book value by the depreciation rate. 🔎 FORMULA: Opening book value x (100% / Useful Life of asset) 3️⃣ SUM OF THE YEARS DIGITS An accelerated depreciation method makes the expense higher in the early years and lower in the latter years. Multiply the cost of an asset by its useful life over the sum of the years digits. 🔎 FORMULA: Cots x ( Useful life / Sum of the Years digits) See the infographic for examples! Follow Brian Feroldi for more content like this.