Truck depreciation is the decrease in value of a fixed asset over time due to wear and tear. It must be recorded as an expense on a company’s balance sheet, using either straight-line or accelerated depreciation. Accelerated depreciation reduces net income and income tax paid.
Truck depreciation is the decrease in the useful life of a vehicle that is considered a fixed asset. It can be measured by straight-line depreciation or by accelerated depreciation. Every fixed asset a business owns has a certain amount of useful life. Since a truck can’t last forever, its value starts to decline over time due to wear and tear.
A company should enter truck depreciation on its balance sheet as an expense because it is a fixed asset that loses value each year and must be accounted for. Although the amount of depreciation is not actually paid in cash, the loss must be recorded to balance the books. The two accounts used to record truck depreciation are the accumulated depreciation account and the depreciation expense account. Accumulated depreciation shows the total combined depreciation of a fixed asset. A depreciation expense account records the depreciation value of a fixed asset during an accounting period.
Straight-line depreciation is a simple method of calculating the amount lost on a fixed asset over time. A certain percentage of the value of the fixed asset is taken as the amount of depreciation per year. It is calculated by subtracting the estimated final value of the asset from its purchase price; This figure is divided by the amount of time the business will use the fixed asset.
A basic example is as follows: Suppose a truck is purchased for $20,000 United States Dollars (USD). The company decides that the vehicle will last six years and should have a final value of $2,000 USD. The $2,000 would be subtracted from the $20,000 cost to get a total depreciation for the truck of $18,000. This figure would be divided by six to get an annual depreciation of $3,000 USD.
Measuring accelerated truck depreciation is a bit more complicated, but shouldn’t be a problem for anyone with basic accounting knowledge. When it comes to dealing with vehicle depreciation, it may not be appropriate to assume that its value declines evenly. Trucks lose most of their value in the first few years of ownership.
With accelerated truck depreciation, the value of the vehicle decreases greatly in the first few years before reducing to a final salvage value. Using the example above again, the company may decide to record the truck’s depreciation as $5,000 for the first year and $4,000 for the second. The depreciation level would slow towards the sixth year with the final value of the truck still estimated at $2,000 USD. This form of depreciation is used to reduce a company’s net income, thereby decreasing the amount of income tax paid in a year.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
