What Is A Depreciation Schedule?
Do you want to figure out how much a piece of equipment for your business will be worth in a few years? A depreciation schedule can tell you that and more. When you acquire new assets such as equipment or vehicles for your business, you or your accountant can use a depreciation schedule to determine their worth over time as they depreciate in value. If you track the depreciation of all equipment, you have a better idea of your overall asset value. This is important for insurance and taxes.
Tips For Making A Depreciation Schedule
One mistake that many people make when creating a schedule is not including enough information. Keep in mind that the depreciation schedule may be read by your accountant or insurance agent. Also, depreciation schedules are often requested by tax auditors if you are audited. For these reasons, be sure that your schedule or schedules adhere to the following professional tips:
- If you write entries by hand, be sure that they are legible.
- Provide a detailed description of each item.
- Include the purchase date and a serial number or assigned inventory number.
- Include all important details such as expected life, salvage value and purchase price.
- Use the right type of depreciation calculation method for each item.
- When in doubt about which type of method to use, try straight-line depreciation first.
- If you plan to use some assets mostly during the first few years after purchase, use the declining-balance method for those.
How To Make A Good Depreciation Schedule
When you are familiar with how to calculate depreciation, you can start building your schedule. It is important to know how to use different calculation methods first and how to choose the ideal method. There are free calculation tools online that allow you to quickly compute straight-line depreciation and declining-balance depreciation. You can also use Excel or a similar program. Follow these steps to make sure that your schedule is useful to you, your company and anyone who must read it.
1. Describe each asset thoroughly. If you have an office with a bunch of printers and you buy three new ones, do not just write one word on the entry field or page for that item. Write the brand name, model, size, color and any other descriptive features. When you review schedules in the future after more purchases are made, it may be hard to differentiate one printer from another if they lack detailed descriptions.
2. Assign numbers to each item. In addition to describing each item thoroughly, you can use an inventory numbering system for easier organization. If an auditor shows up, you will be able to locate items quicker. Also, the auditor will be able to see that the numbered item matches its description. Think of it as a second form of insurance against problems and data entry errors. This method is also helpful if you buy multiple items that are made by the same manufacturer.
3. Include the updated net book value. Be sure that your schedule is updated frequently to show the current net book value, which is the asset’s accumulated depreciation subtracted from the original cost. Your insurer may inquire about this number.
4. Keep a master schedule and detailed individual schedules. If you want to limit your potential future headaches with an auditor and also want to make your schedules as useful as possible for internal purposes, start with a detailed list for each asset. For example, if you buy four printers, four computers, a fax machine and a commercial copier, make an individual list for each item instead of each category. You will be able to see that your numbers add up over time for every item. Transfer important values such as net book value, accumulated depreciation, cost and a brief description of the item to a master list that includes all of your assets.
5. Make a note of each asset’s location. If you use the method in the previous step, leave a section for the location of the item. For example, if you run a manufacturing business that has a warehouse on the first floor and an office space on the second floor, you should put the location of all listed warehouse tools as being in the warehouse. Additionally, you could list their locations on shelves or designated areas. For a printer on the accountant’s desk, you could list that the printer is located in the accountant’s cubicle in the office. If you are audited, an auditor will want to count inventory. Knowing where each item is located saves time, and it also makes it easier for you to keep track of everything.
Depreciation Schedule Examples
In this section, you will see a list of items that must be included on the schedule. Also, there is an example template that you can use for making your own document. The template example shows how to make a schedule page for an individual item. When you create a master schedule that gives an overview of all assets, include at least each item’s name, inventory number, purchase price, accumulated depreciation and current book value. You can update your master list monthly, quarterly, semi-annually or annually depending on your company’s needs and number of assets.
List Items Example
Item name and description
Inventory number if applicable
Expected useful life
Current year depreciation
Starting and ending net book value
Description: Lexxon 34B80 3-in-1, gray
Location: Cubicle 24
Inventory Number: 123456
Purchase Date: January 5, 2016
Purchase Price: $265.00
Salvage Value: $50
Life: 60 months
Depreciation Method: Straight-line
Start Book Value
End Book Value