Depreciation is a term that is used mainly in economics, finance and accounting. It is usually used to spread the value of an asset over the years. It is the reduction in the value of an asset that is used for business purposes within a time gap of several years. This reduction could be due to time, wear and tear. It can also be due technological outdating, inadequacy, rot, decay, rust, depletion or any other similar cause.
Depreciation schedule is basically a chart that depicts the value that remains of an asset after a certain gap of time and the depreciation expense during that time. This value can be calculated using different methods and there are many to choose from. The two most used methods are straight-line method and reducing balance method. The format of the depreciation schedule is given in the following sequence: year, value of asset, depreciation and cumulative depreciation.
In the straight-line method of calculating depreciation, the value of the asset becomes less or reduces every year by a certain fixed amount. This value goes on decreasing till the salvage value is reached at the end of its life. In the reducing balance method of calculating depreciation, a fixed formula is used.