What expense category is depreciation?

There is no definitive answer to this question as the expense category for depreciation can vary depending on the accounting method used and the specific industry. However, some common expense categories for depreciation include:

Straight-Line Depreciation

Under the straight-line method, depreciation expense is recognized evenly over the asset's useful life. This method is the most commonly used and results in a constant depreciation expense on the income statement. The straight-line method is often used for tax purposes as well.

Accelerated Depreciation

Under the accelerated method, depreciation expense is recognized more in the early years of the asset's life and less in the later years. This method is often used for tax purposes as it results in a higher deduction in the early years when the company is likely in a higher tax bracket. The accelerated method is less commonly used for financial reporting purposes as it results in a higher expense in the early years and a lower expense in the later years, which can be misleading.

Declining Balance Depreciation

Under the declining balance method, depreciation expense is recognized at a higher rate in the early years of the asset's life and a lower rate in the later years. This method is less commonly used as it can result in large swings in depreciation expense from year to year. However, it is often used for tax purposes as it results in a higher deduction in the early years when the company is likely in a higher tax bracket.

Sum-of-the-Years'-Digits Depreciation

Under the sum-of-the-years'-digits method, depreciation expense is recognized at a higher rate in the early years of the asset's life and a lower rate in the later years. This method is less commonly used as it can result in large swings in depreciation expense from year to year. However, it is often used for tax purposes as it results in a higher deduction in the early years when the company is likely in a higher tax bracket.

The information provided in this article does not constitute legal or financial advice and is for general informational purposes only. Please check with an attorney or financial advisor to obtain advice with respect to the content of this article.

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