1. A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence.

Most ass
be replaced once the end of their useful life is reached. There are several accounting methods that are used in orde
Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash

2. A decline in the value of a given currency in comparison with other currencies. For instance, if the U.S. dollar d
order to obtain the original amount of euros before depreciation occurred.

The straight-line depreciation method is one way of recording this reduction in value. This method calculates the
asset minus the scrap value of that asset then dividing by the life span (the number of years the fixed asset will be

The double declining depreciation method, like the straight-line method, is another way to record the reduction in
doubling the straight-line depreciation rate then multiplying it by the assets net book value at the beginning of the
line depreciation rate the double declining balance depreciation rate would be forty. But, unlike the straight-line de
recalculated each year using the previous years net book value at end of year. The early calculations are noticeabl
depreciation method is that as the fixed asset is used throughout its life span the depreciation expense decreases si
the taxes upfront instead of having to pay them further down the road.

or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must
hods that are used in order to write offan asset's depreciation cost over the period of its useful life.
hile increasing free cash flow.

tance, if the U.S. dollar depreciates against the Euro, buyers would have to pay more dollars in

is method calculates the annual depreciation expense by taking the cost of the fixed
rs the fixed asset will be in use)

o record the reduction in value of an asset while it is in use. In this method the annual depreciation expense is calculated by
ue at the beginning of the year. So, hypothetically, if a company or organizations fixed asset has a twenty percent straightunlike the straight-line depreciation method, when using the double declining depreciation the depreciation expense is
alculations are noticeably higher forcing higher taxes early on. But, the benefit to using the double declining balance
ion expense decreases significantly. So, companies and organizations choose this method so they can pay a larger sum of

epreciation expense is calculated by

sset has a twenty percent straighton the depreciation expense is
the double declining balance
od so they can pay a larger sum of