ACCELERATED DEPRECIATION
Back to GlossaryDefinition
Any method of depreciation used for accounting or income tax purposes that allows greater depreciation expenses in the early years of the life of an asset.
Summary
Accelerated depreciation is a tax and accounting strategy that allows businesses to write off the cost of assets more quickly in the first few years after purchase, rather than spreading the expense evenly over the asset's useful life. This front-loads the depreciation expense, providing larger tax deductions early on, which can improve cash flow and reduce taxable income in the near term. Common methods include double-declining balance and sum-of-years-digits depreciation.
Usage Context
Essential when studying corporate finance, tax planning, financial statement analysis, and capital budgeting decisions. Critical for understanding how companies manage taxable income and cash flow timing.
Common Confusions
- Thinking accelerated depreciation changes the actual physical deterioration of the asset
- Confusing it with the asset's market value decline
- Believing it increases total depreciation over the asset's life (it only changes timing)
- Mixing up the impact on financial statements versus tax returns
- Assuming all assets must use the same depreciation method
