{"id":28168,"date":"2026-04-13T11:18:57","date_gmt":"2026-04-13T11:18:57","guid":{"rendered":"https:\/\/www.mooninvoice.com\/blog\/?p=28168"},"modified":"2026-04-13T11:41:31","modified_gmt":"2026-04-13T11:41:31","slug":"what-is-depreciation","status":"publish","type":"post","link":"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/","title":{"rendered":"What is Depreciation? Meaning, Types, and Calculation Process"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_11 counter-hierarchy counter-decimal ez-toc-grey\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\"><i class=\"ez-toc-glyphicon ez-toc-icon-toggle\"><\/i><\/a><\/span><\/div>\n<nav><ul class=\"ez-toc-list ez-toc-list-level-1\"><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#What_is_Depreciation_in_Accounting\" title=\"What is Depreciation in Accounting?\">What is Depreciation in Accounting?<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Types_of_Depreciation\" title=\"Types of Depreciation\">Types of Depreciation<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#How_Does_Depreciation_Work\" title=\"How Does Depreciation Work?\">How Does Depreciation Work?<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#How_is_Depreciation_Calculated\" title=\"How is Depreciation Calculated?\">How is Depreciation Calculated?<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Is_Depreciation_an_Expense\" title=\"Is Depreciation an Expense?\">Is Depreciation an Expense?<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Can_Intangible_Assets_be_Depreciated\" title=\"Can Intangible Assets be Depreciated?\">Can Intangible Assets be Depreciated?<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Common_Depreciation_Calculation_Mistakes\" title=\"Common Depreciation Calculation Mistakes\">Common Depreciation Calculation Mistakes<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Manage_Your_Expenses_Smartly_with_Moon_Invoice\" title=\"Manage Your Expenses Smartly with Moon Invoice\">Manage Your Expenses Smartly with Moon Invoice<\/a><\/li><li class=\"ez-toc-page-1 ez-toc-heading-level-2\"><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#Relevant_Questions_on_Depreciation\" title=\"Relevant Questions on Depreciation\">Relevant Questions on Depreciation<\/a><\/li><\/ul><\/nav><\/div>\n<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\/\",\n  \"@type\": \"Article\",\n  \"mainEntityOfPage\": {\n    \"@type\": \"WebPage\",\n    \"@id\": \"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\"\n  },\n  \"headline\": \"What is Depreciation? Meaning, Types, and Calculation Process\",\n  \"description\": \"Explore depreciation with key methods, types, and examples that show how businesses allocate asset costs and manage financial reporting effectively.\",\n  \"image\": {\n    \"@type\": \"ImageObject\",\n    \"url\": \"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13101433\/Depreciation-Meaning-Types-Examples.jpg\",\n    \"width\": \"1200\",\n    \"height\": \"700\"\n  },\n  \"author\": {\n    \"@type\": \"Organization\",\n    \"name\": \"Moon Invoice Team\"\n  },\n  \"publisher\": {\n    \"@type\": \"Organization\",\n    \"name\": \"Moon Invoice\",\n    \"logo\": {\n      \"@type\": \"ImageObject\",\n      \"url\": \"https:\/\/cdn.mooninvoice.com\/image\/images\/home_images\/mi-animated-logo1.svg\",\n      \"width\": \"254\",\n      \"height\": \"47\"\n    }\n  },\n  \"datePublished\": \"2026-04-13\",\n  \"dateModified\": \"2026-04-13\"\n}\n<\/script><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"FAQPage\",\n  \"mainEntity\": [\n    {\n      \"@type\": \"Question\",\n      \"name\": \"How does depreciation work for businesses?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Depreciation works for businesses by allocating the cost of a long-term asset over its useful life. Generally, a business records a portion of the asset's value as an expense in the first year and reduces its value gradually over time, based on usage or obsolescence, in its financial statements.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"What's the best method to calculate depreciation?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Generally, the straight-line method works best for consistent value loss, while the double declining balance method works best for quick value loss. Units of production fit usage-prioritized assets, while the sum of the years' digits is applicable if higher early depreciation is preferred. Ultimately, the best method depends on how the asset is used and how quickly it loses value.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"What is tax depreciation?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Depreciation meaning, for tax purposes, refers to businesses deducting a portion of an asset\u2019s cost each year. It reduces taxable income and lowers tax liability. Clearly specified useful life of the asset and approved methods help tax authorities to calculate allowable depreciation deductions.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Is depreciation an expense or a liability?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Depreciation is an expense, not a liability. On the income statement, it appears as depreciation expense and reduces profit, while on the balance sheet, accumulated depreciation reduces the asset's carrying amount.\"\n      }\n    },\n    {\n      \"@type\": \"Question\",\n      \"name\": \"Is depreciation a cost or income?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"Depreciation is a cost, never an income. It represents the portion of an asset's value consumed during a specific period. The reason why it is not recorded as income is that it reduces profit and reflects asset usage.\"\n      }\n    }\n  ]\n}\n<\/script><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_Depreciation_in_Accounting\"><\/span>What is Depreciation in Accounting?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In business accounting, depreciation refers to the gradual reduction in the value of tangible assets of the business over time due to continuous usage, wear and tear, or obsolescence. Depreciation can also be defined as the process of allocating the cost of an asset (such as machinery or equipment) over its useful life instead of recording it as a one-time expense.<\/p>\n<p>For example, if a business purchases a machine for $5,500 that is expected to last 6 to 7 years, depreciation allows the cost to be allocated over those 6 to 7 years rather than deducting the entire $5,500 in the first year.<\/p>\n<p><strong>A business records depreciation for multiple reasons, such as:<\/strong><\/p>\n<ul class=\"custom-disc-list\">\n<li>Measuring profit more accurately<\/li>\n<li>Matching revenue with expenses<\/li>\n<li>Reducing taxable income<\/li>\n<li>Simplifying asset valuation<\/li>\n<li>Planning future asset investments<\/li>\n<\/ul>\n<p>Depreciation ensures financial statements present a more realistic view of a business&#8217;s financial health.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_Depreciation\"><\/span>Types of Depreciation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><img decoding=\"async\" loading=\"lazy\" class=\"alignnone wp-image-28288 size-full\" title=\"Types of Depreciation\" src=\"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation.jpg\" alt=\"Types of Depreciation\" width=\"1200\" height=\"700\" srcset=\"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation.jpg 1200w, https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation-300x175.jpg 300w, https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation-1024x597.jpg 1024w, https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation-768x448.jpg 768w, https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation-960x560.jpg 960w, https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13102029\/Different-Types-of-Depreciation-150x88.jpg 150w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<div style=\"height:10px;\"><\/div>\n<p>A business asset can be depreciated in multiple ways, and a business should choose the right depreciation method by correctly evaluating its asset usage, value decline, and financial goals. Each method differs from the others and has a different impact on asset depreciation.<\/p>\n<p>Let&#8217;s find out the most common depreciation methods below:<\/p>\n<h3>1. Straight-line Depreciation<\/h3>\n<p>It is one of the most commonly used depreciation methods, where the primary goal is to calculate an asset&#8217;s depreciation cost by evenly spreading it over its useful life. Businesses using the straight-line depreciation method find it easier to allocate expenses each year.<\/p>\n<p>Simplicity and clarity are among the top reasons why many businesses use this method in their accounting practices.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Cost of Asset &#8211; Scrap Value of Asset) \/ Useful Life of Asset<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p><strong>Commonly used for:<\/strong><\/p>\n<p>Furniture, buildings, equipment; say assets that lose value steadily over time.<\/p>\n<div class=\"cta-sc\">\n<p class=\"cta-ttl\"><strong class=\"cta-ttl\">Expense Tracking Becoming Overburdening?<\/strong><\/p>\n<p class=\"cta-cnt\">It shouldn\u2019t be. Track the expenses of your business assets by just rolling over your fingers with Moon Invoice.<\/p>\n<p><a class=\"btn\">Sign Up for Free<\/a><\/p>\n<\/div>\n<h3>2. Double Declining Balance Depreciation<\/h3>\n<p>The double declining balance method is an accelerated depreciation method in which a larger portion of an asset&#8217;s cost is depreciated in the early years and a smaller portion in later years.<\/p>\n<p>This method is not applicable to all assets except those that lose value quickly or become obsolete sooner. With this depreciation method, businesses match higher initial usage with higher expenses.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = 2 x (1 \/ Life of Asset) x Book Value<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p><strong>Commonly used for:<\/strong><\/p>\n<p>Assets that lose value quickly, such as vehicles, electronics, and technology-based equipment.<\/p>\n<h3>3. Units of Production Depreciation<\/h3>\n<p>The units of production method differ from the other two methods. It calculates an asset&#8217;s expense based on actual usage or results rather than depreciating over time. It is particularly well-suited to wear and tear, depending on production levels.<\/p>\n<p>The units of depreciation method provides a more accurate allocation of depreciation expense for assets that are heavily used in operational activities.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Number of Units Produced \/ Life of Asset in Units) x (Cost of Asset &#8211; Scrap Value of Asset)<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p><strong>Commonly used for:<\/strong><\/p>\n<p>Manufacturing assets or machinery where usage is based on output or operational demand<\/p>\n<h3>4. Sum of the Years&#8217; Digits Depreciation<\/h3>\n<p>It is a fast-forward depreciation method that allocates higher depreciation in the initial years and gradually decreases over time. You might think this is similar to the double declining balance method, but it doesn&#8217;t depreciate an asset as quickly as that method does.<br \/>\nFollowing this method, the annual depreciation expense is calculated as a fraction of the asset&#8217;s remaining life. As time passes, accumulated depreciation increases as the asset ages.<\/p>\n<p><strong>Formula:<\/strong><\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Remaining Life of the Asset \/ Sum of the Year&#8217;s Digits) x (Cost of Asset &#8211; Scrap Value of Asset)<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p><strong>Commonly used for:<\/strong><\/p>\n<p>Assets that lose value quickly in the early years, such as leasehold improvements.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_Does_Depreciation_Work\"><\/span>How Does Depreciation Work?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Depreciation works by allocating the cost of a tangible asset over its expected useful life in a systematic order. In depreciation, asset usage is matched to revenue generation, ensuring that financial statements present a realistic profit picture.<\/p>\n<p>Let\u2019s understand this step by step:<\/p>\n<h3>Step 1: Asset Purchase<\/h3>\n<p>When a business buys an asset, it records the total cost, including purchase price, shipping, installation, and taxes. This complete amount becomes the asset\u2019s initial value for depreciation calculation.<\/p>\n<h3>Step 2: Annual Depreciation<\/h3>\n<p>The business subtracts the scrap value from the asset\u2019s cost and spreads the remaining amount over its useful life using the selected depreciation method each year.<\/p>\n<h3>Step 3: Book Value Tracking<\/h3>\n<p>After recording yearly depreciation, accumulated depreciation increases while the asset\u2019s carrying value decreases. This updated book value appears on the balance sheet for accurate <a href=\"https:\/\/www.mooninvoice.com\/blog\/financial-reporting\/\">financial reporting<\/a>.<\/p>\n<h3>Step 4: End of Life<\/h3>\n<p>Depreciation continues until the asset\u2019s book value reaches its scrap value. At this stage, no further depreciation is recorded, even if the asset is still in use.<\/p>\n<div class=\"left-border-box border-green\">Manually Managing Expenses Becoming Stressful? Switch to <a href=\"https:\/\/www.mooninvoice.com\/expense-tracking-software\">Expense Tracking Software<\/a> Now!<\/div>\n<h2><span class=\"ez-toc-section\" id=\"How_is_Depreciation_Calculated\"><\/span>How is Depreciation Calculated?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>You can calculate depreciation expense of your business assets based on their type and usage. Below, we will explore an example of depreciation for each method and how it is calculated.<\/p>\n<h3>1. Using Straight-line Depreciation<\/h3>\n<p>Let&#8217;s assume a U.S.-based business purchases mandatory office equipment for $15,000 with a scrap value of $1,500 and a useful life of 7 years.<\/p>\n<p>Using the straight-line method, this is how the cost will be evenly spread across all years:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Cost of Asset = $15,000<\/li>\n<li>Scrap Value of the Asset = $1,500<\/li>\n<li>Useful Life of Asset = 7 Years<\/li>\n<\/ul>\n<p>We will use the formula:<\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Cost of Asset &#8211; Scrap Value of Asset) \/ Useful Life of Asset<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p>So, depreciation expense will be:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Depreciation Expense = ($15,000 &#8211; $1,500) \/ 7 = $1,928.571<\/li>\n<\/ul>\n<p>So, the annual depreciation expense is $1,928.571 per year. It means the business will deduct $1,928.571 every year for 7 years until the asset reaches its scrap value.<\/p>\n<h3>2. Using Double Declining Balance Depreciation<\/h3>\n<p>To calculate depreciation using this method, let&#8217;s consider a company that purchases a transportation vehicle for $45,000 with a useful life of 10 years.<\/p>\n<p>Here, calculation is done on the book value, which starts as the asset cost and reduces every year.<\/p>\n<p>We have:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Book Value = $45,000<\/li>\n<li>Useful Life of the Asset = 10<\/li>\n<\/ul>\n<p>Using the formula:<\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = 2 x (1 \/ Life of Asset) x Book Value<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p>So, depreciation expense will be:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Depreciation Expense = 2 x (1 \/ 10) x $45,000 = $9,000<\/li>\n<\/ul>\n<p>So, for this method, the depreciation for the first year is $9,000. The book value is now $9,000, and next year&#8217;s depreciation will be calculated using this reduced amount.<\/p>\n<h3>3. Using Units of Production Depreciation<\/h3>\n<p>For units of production depreciation, let&#8217;s assume a business purchases a machine for $25,000, with a scrap value of $2,500. The machine is expected to produce 95,000 units over its lifetime. In a given year, it produces 19,000 units.<\/p>\n<p>For this example, we have:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Number of Units produced = 19,000<\/li>\n<li>Life of Asset in Units = 95,000<\/li>\n<li>Cost of Asset = $25,000<\/li>\n<li>Scrap Value of Asset = $2,500<\/li>\n<\/ul>\n<p>Using the formula:<\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Number of Units Produced \/ Life of Asset in Units) x (Cost of Asset &#8211; Scrap Value of Asset)<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p>So, the depreciation expense will be:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Depreciation Expense = (19,000 \/ 95,000) x ($25,000 &#8211; $2,500) = $4,500<\/li>\n<\/ul>\n<p>So, the depreciation expense for that year is $4,500. This method gives more clarity on the actual usage of the asset rather than time.<\/p>\n<h3>4. Using Sum of the Years&#8217; Digits Depreciation<\/h3>\n<p>Suppose a business invests $13,000 in leasehold improvements with a scrap value of $2,500 and a useful life of 5 years. The sum of the years&#8217; digits is 1 + 2 + 3 + 4 + 5 = 15.<\/p>\n<p>For the first year, the remaining life is 5.<\/p>\n<p>Here, we have:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Remaining Life of the Asset = 5<\/li>\n<li>Sum of the Years&#8217; Digits = 15<\/li>\n<li>Cost of Asset = $13,000<\/li>\n<li>Scrap Value of Asset = $2,500<\/li>\n<\/ul>\n<p>Using the formula:<\/p>\n<div class=\"formula-box formula-blue\"><strong>Depreciation Expense = (Remaining Life of the Asset \/ Sum of the Year&#8217;s Digits) x (Cost of Asset &#8211; Scrap Value of Asset)<\/strong><\/div>\n<div class=\"spacers-10\"><\/div>\n<p>So, the depreciation expense will be:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Depreciation Expense = (19,000 \/ 95,000) x ($25,000 &#8211; $2,500) = $4,500<\/li>\n<\/ul>\n<p>So, the total depreciation expense for the first year is $3,500. Each year, the remaining life reduces, which leads to lower depreciation over time.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Is_Depreciation_an_Expense\"><\/span>Is Depreciation an Expense?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Yes, it is true that depreciation is considered an expense. However, it is recognized as a non-cash expense, meaning it doesn&#8217;t necessarily need a cash outflow but has a major role in reducing an asset&#8217;s value over time.<\/p>\n<p>Generally, depreciation is recorded on the <a href=\"https:\/\/www.mooninvoice.com\/blog\/how-to-prepare-income-statement\/\">income statement<\/a> as an expense and on the balance sheet as accumulated depreciation. It helps businesses maintain accurate financial records and cross-check if expenses are matched with the revenue generated by the asset.<\/p>\n<p>For example, suppose a business purchases an asset for $12,000 with a useful life of 6 years. Here, the entire $12,000 won&#8217;t be recorded as an expense in the first year. Instead, a portion is recorded annually as depreciation expense, which reduces reported profit gradually.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Can_Intangible_Assets_be_Depreciated\"><\/span>Can Intangible Assets be Depreciated?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>No, intangible assets can&#8217;t be depreciated. Only tangible assets depreciate, i.e., assets you can physically see, such as buildings, machines, furniture, and tools. Intangible assets that do not have a physical form can&#8217;t be depreciated.<\/p>\n<p>Unlike depreciation, intangible assets are amortized, a process similar to depreciation but applied only to non-physical assets such as copyrights, trademarks, and licenses.<\/p>\n<div class=\"cta-banner-revamp\">\n<div class=\"cta-banner-wrap\">\n<div class=\"cta-left-div\">\n<p class=\"font-white fs-30 m-0 mb-15 text-start\">Create Tax-ready Expense Reports <span class=\"font-yellow\">in Seconds.<\/span><\/p>\n<p class=\"font-white fs-16 m-0 mb-30 text-start max-w-375\">Automatically generate expense reports in just a few clicks<\/p>\n<div class=\"cta-info-wrap\">\n<div class=\"cta-info-sub-div\">\n                <svg width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"vr-middle\">\n                <path d=\"M17 10.2574C17 11.8002 16.5425 13.3083 15.6854 14.591C14.8283 15.8738 13.6101 16.8736 12.1848 17.4639C10.7594 18.0543 9.19107 18.2088 7.67797 17.9078C6.16486 17.6069 4.77498 16.8639 3.6841 15.7731C2.59321 14.6822 1.8503 13.2923 1.54933 11.7792C1.24835 10.2661 1.40282 8.69771 1.99321 7.27239C2.58359 5.84708 3.58338 4.62884 4.86613 3.77174C6.14888 2.91463 7.65698 2.45715 9.19973 2.45715C11.2685 2.45715 13.2525 3.27897 14.7154 4.7418C16.1782 6.20464 17 8.18867 17 10.2574Z\" fill=\"#E4A41D\"\/>\n                <path d=\"M9.86957 7.00009V13.0001L13 10.0001L9.86957 7.00009ZM6.3913 8.50009C6.02231 8.50009 5.66842 8.65813 5.4075 8.93943C5.14658 9.22074 5 9.60227 5 10.0001C5 10.3979 5.14658 10.7794 5.4075 11.0608C5.66842 11.3421 6.02231 11.5001 6.3913 11.5001C6.7603 11.5001 7.11418 11.3421 7.3751 11.0608C7.63602 10.7794 7.78261 10.3979 7.78261 10.0001C7.78261 9.60227 7.63602 9.22074 7.3751 8.93943C7.11418 8.65813 6.7603 8.50009 6.3913 8.50009Z\" fill=\"#012057\"\/>\n                <\/svg><br \/>\n                <span class=\"font-yellow fs-14\">Track Expense<\/span>\n            <\/div>\n<div class=\"cta-info-sub-div\">\n               <svg width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"vr-middle\">\n               <path d=\"M17 10.2574C17 11.8002 16.5425 13.3083 15.6854 14.591C14.8283 15.8738 13.6101 16.8736 12.1848 17.4639C10.7594 18.0543 9.19107 18.2088 7.67797 17.9078C6.16486 17.6069 4.77498 16.8639 3.6841 15.7731C2.59321 14.6822 1.8503 13.2923 1.54933 11.7792C1.24835 10.2661 1.40282 8.69771 1.99321 7.27239C2.58359 5.84708 3.58338 4.62884 4.86613 3.77174C6.14888 2.91463 7.65698 2.45715 9.19973 2.45715C11.2685 2.45715 13.2525 3.27897 14.7154 4.7418C16.1782 6.20464 17 8.18867 17 10.2574Z\" fill=\"#E4A41D\"\/>\n               <path d=\"M9.86957 7.00009V13.0001L13 10.0001L9.86957 7.00009ZM6.3913 8.50009C6.02231 8.50009 5.66842 8.65813 5.4075 8.93943C5.14658 9.22074 5 9.60227 5 10.0001C5 10.3979 5.14658 10.7794 5.4075 11.0608C5.66842 11.3421 6.02231 11.5001 6.3913 11.5001C6.7603 11.5001 7.11418 11.3421 7.3751 11.0608C7.63602 10.7794 7.78261 10.3979 7.78261 10.0001C7.78261 9.60227 7.63602 9.22074 7.3751 8.93943C7.11418 8.65813 6.7603 8.50009 6.3913 8.50009Z\" fill=\"#012057\"\/>\n               <\/svg><br \/>\n                <span class=\"font-yellow fs-14\">Generate Reports<\/span>\n            <\/div>\n<div class=\"cta-info-sub-div\">\n               <svg width=\"20\" height=\"20\" viewBox=\"0 0 20 20\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"vr-middle\">\n              <path d=\"M17 10.2574C17 11.8002 16.5425 13.3083 15.6854 14.591C14.8283 15.8738 13.6101 16.8736 12.1848 17.4639C10.7594 18.0543 9.19107 18.2088 7.67797 17.9078C6.16486 17.6069 4.77498 16.8639 3.6841 15.7731C2.59321 14.6822 1.8503 13.2923 1.54933 11.7792C1.24835 10.2661 1.40282 8.69771 1.99321 7.27239C2.58359 5.84708 3.58338 4.62884 4.86613 3.77174C6.14888 2.91463 7.65698 2.45715 9.19973 2.45715C11.2685 2.45715 13.2525 3.27897 14.7154 4.7418C16.1782 6.20464 17 8.18867 17 10.2574Z\" fill=\"#E4A41D\"\/>\n              <path d=\"M9.86957 7.00009V13.0001L13 10.0001L9.86957 7.00009ZM6.3913 8.50009C6.02231 8.50009 5.66842 8.65813 5.4075 8.93943C5.14658 9.22074 5 9.60227 5 10.0001C5 10.3979 5.14658 10.7794 5.4075 11.0608C5.66842 11.3421 6.02231 11.5001 6.3913 11.5001C6.7603 11.5001 7.11418 11.3421 7.3751 11.0608C7.63602 10.7794 7.78261 10.3979 7.78261 10.0001C7.78261 9.60227 7.63602 9.22074 7.3751 8.93943C7.11418 8.65813 6.7603 8.50009 6.3913 8.50009Z\" fill=\"#012057\"\/>\n              <\/svg><br \/>\n                <span class=\"font-yellow fs-14\">Automate Workflow<\/span>\n            <\/div>\n<\/p><\/div>\n<div class=\"btn-div\">\n          <button class=\"btn calltryitfree_btn\">Get Moon Invoice for Free<\/button>\n        <\/div>\n<\/p><\/div>\n<div class=\"cta_banner_img_div\">\n            <img decoding=\"async\" src=\"https:\/\/cdn.mooninvoice.com\/image\/images\/newhome\/cta_banner_img_new4x.png\" alt=\"CTA Banner\" width=\"350\">\n        <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Common_Depreciation_Calculation_Mistakes\"><\/span>Common Depreciation Calculation Mistakes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Errors and mistakes in depreciation lead to unclear financial statements and inaccurate taxable income, which creates audit risks. You should avoid these common depreciation calculation mistakes in order to have a more accurate financial overview of your business.<\/p>\n<p>Here are the common depreciation calculation mistakes to avoid:<\/p>\n<ul class=\"custom-disc-list\">\n<li>Many businesses fail to choose the correct depreciation method for their assets and, as a result, move forward with an incorrect asset value over time.<\/li>\n<li>Selecting the wrong asset lifespan is another mistake found in many businesses, leading to overstatement or understatement of depreciation expense.<\/li>\n<li>New businesses or startups often mix book value with asset cost, which leads to incorrect depreciation amounts.<\/li>\n<li>Ignoring depreciation on assets purchased mid-year distorts financial statements.<\/li>\n<li>Depreciating non-depreciable assets, or certain intangible assets that should not be depreciated, is often done by mistake.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Manage_Your_Expenses_Smartly_with_Moon_Invoice\"><\/span>Manage Your Expenses Smartly with Moon Invoice<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Calculating the depreciation of your business assets provides a more realistic view of your business&#8217;s financial health. The right depreciation method for your assets helps you generate accurate financial statements for tax purposes.<\/p>\n<p>However, manual expense tracking can lead to errors and missed calculations. To manage expenses effectively, consider using expense-tracking software like <a href=\"https:\/\/www.mooninvoice.com\/\">Moon Invoice<\/a>.<\/p>\n<p>The expense tracking software helps you record purchase costs, categorize asset expenses, create your own expense categories, and monitor value changes over time without manual calculations. It correctly reports depreciation as an expense on the income statement while reducing the asset\u2019s value on the <a href=\"https:\/\/www.mooninvoice.com\/blog\/balance-sheet\/\">balance sheet<\/a> through accumulated depreciation.<\/p>\n<p>So, are you in search of expense tracking software? Consider your search is over.Start your free trial now!<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Relevant_Questions_on_Depreciation\"><\/span>Relevant Questions on Depreciation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div id=\"1-link-28168\" class=\"sh-link 1-link sh-hide\"><h3 onclick=\"showhide_toggle('1', 28168, 'How does depreciation work for businesses?', 'How does depreciation work for businesses?'); return false;\" aria-expanded=\"false\"><span id=\"1-toggle-28168\" class=\"sh-toggle\" data-more=\"How does depreciation work for businesses?\" data-less=\"How does depreciation work for businesses?\">How does depreciation work for businesses?<\/span><\/h3><\/div><div id=\"1-content-28168\" class=\"sh-content 1-content sh-hide\" style=\"display: none;\"><\/p>\n<p>Depreciation works for businesses by allocating the cost of a long-term asset over its useful life. Generally, a business records a portion of the asset&#8217;s value as an expense in the first year and reduces its value gradually over time, based on usage or obsolescence, in its financial statements.<\/p>\n<p><\/div>\n<div id=\"2-link-28168\" class=\"sh-link 2-link sh-hide\"><h3 onclick=\"showhide_toggle('2', 28168, 'What\\'s the best method to calculate depreciation?', 'What\\'s the best method to calculate depreciation?'); return false;\" aria-expanded=\"false\"><span id=\"2-toggle-28168\" class=\"sh-toggle\" data-more=\"What&#039;s the best method to calculate depreciation?\" data-less=\"What&#039;s the best method to calculate depreciation?\">What's the best method to calculate depreciation?<\/span><\/h3><\/div><div id=\"2-content-28168\" class=\"sh-content 2-content sh-hide\" style=\"display: none;\"><\/p>\n<p>Generally, the straight-line method works best for consistent value loss, while the double declining balance method works best for quick value loss. Units of production fit usage-prioritized assets, while the sum of the years&#8217; digits is applicable if higher early depreciation is preferred. Ultimately, the best method depends on how the asset is used and how quickly it loses value.<\/p>\n<p><\/div>\n<div id=\"3-link-28168\" class=\"sh-link 3-link sh-hide\"><h3 onclick=\"showhide_toggle('3', 28168, 'What is tax depreciation?', 'What is tax depreciation?'); return false;\" aria-expanded=\"false\"><span id=\"3-toggle-28168\" class=\"sh-toggle\" data-more=\"What is tax depreciation?\" data-less=\"What is tax depreciation?\">What is tax depreciation?<\/span><\/h3><\/div><div id=\"3-content-28168\" class=\"sh-content 3-content sh-hide\" style=\"display: none;\"><\/p>\n<p>Depreciation meaning, for tax purposes, refers to businesses deducting a portion of an asset\u2019s cost each year. It reduces taxable income and lowers tax liability. Clearly specified useful life of the asset and approved methods help tax authorities to calculate allowable depreciation deductions.<\/p>\n<p><\/div>\n<div id=\"4-link-28168\" class=\"sh-link 4-link sh-hide\"><h3 onclick=\"showhide_toggle('4', 28168, 'Is depreciation an expense or a liability?', 'Is depreciation an expense or a liability?'); return false;\" aria-expanded=\"false\"><span id=\"4-toggle-28168\" class=\"sh-toggle\" data-more=\"Is depreciation an expense or a liability?\" data-less=\"Is depreciation an expense or a liability?\">Is depreciation an expense or a liability?<\/span><\/h3><\/div><div id=\"4-content-28168\" class=\"sh-content 4-content sh-hide\" style=\"display: none;\"><\/p>\n<p>Depreciation is an expense, not a liability. On the income statement, it appears as depreciation expense and reduces profit, while on the balance sheet, accumulated depreciation reduces the asset&#8217;s carrying amount.<\/p>\n<p><\/div>\n<div id=\"5-link-28168\" class=\"sh-link 5-link sh-hide\"><h3 onclick=\"showhide_toggle('5', 28168, 'Is depreciation a cost or income?', 'Is depreciation a cost or income?'); return false;\" aria-expanded=\"false\"><span id=\"5-toggle-28168\" class=\"sh-toggle\" data-more=\"Is depreciation a cost or income?\" data-less=\"Is depreciation a cost or income?\">Is depreciation a cost or income?<\/span><\/h3><\/div><div id=\"5-content-28168\" class=\"sh-content 5-content sh-hide\" style=\"display: none;\"><\/p>\n<p>Depreciation is a cost, never an income. It represents the portion of an asset&#8217;s value consumed during a specific period. The reason why it is not recorded as income is that it reduces profit and reflects asset usage.<\/p>\n<p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Table of Contents What is Depreciation in Accounting?Types of DepreciationHow Does Depreciation Work?How is Depreciation Calculated?Is Depreciation an Expense?Can Intangible Assets be Depreciated?Common Depreciation Calculation MistakesManage Your Expenses Smartly with Moon InvoiceRelevant Questions on Depreciation What is Depreciation in Accounting? In business accounting, depreciation refers to the gradual reduction in the value of tangible assets&hellip; <a class=\"more-link\" href=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\">Continue reading <span class=\"screen-reader-text\">What is Depreciation? Meaning, Types, and Calculation Process<\/span><\/a><\/p>\n","protected":false},"author":12,"featured_media":28287,"comment_status":"open","ping_status":"open","sticky":false,"template":"single-custom-post.php","format":"standard","meta":[],"categories":[1376],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v15.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Free Invoicing, Finance Tips &amp; Insights for Small Business<\/title>\n<meta name=\"description\" content=\"Get insights on invoicing, finance, and startup tips for small businesses, freelancers, and payment at Moon Invoice Blog.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is Depreciation? Types and Common Mistakes\" \/>\n<meta property=\"og:description\" content=\"Learn what depreciation is, its meaning, types, and calculation methods with examples. Understand each depreciation type for accurate tax reporting.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\" \/>\n<meta property=\"og:site_name\" content=\"Free Invoicing, Finance Tips &amp; Insights for Small Business\" \/>\n<meta property=\"article:author\" content=\"https:\/\/www.facebook.com\/mooninvoice\/\" \/>\n<meta property=\"article:published_time\" content=\"2026-04-13T11:18:57+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-04-13T11:41:31+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13101433\/Depreciation-Meaning-Types-Examples.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"700\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"What is Depreciation? Types and Common Mistakes\" \/>\n<meta name=\"twitter:description\" content=\"Learn what depreciation is, its meaning, types, and calculation methods with examples. Understand each depreciation type for accurate tax reporting.\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13101433\/Depreciation-Meaning-Types-Examples.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@https:\/\/x.com\/mooninvoice\/\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/#website\",\"url\":\"https:\/\/www.mooninvoice.com\/blog\/\",\"name\":\"Free Invoicing, Finance Tips &amp; Insights for Small Business\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":\"https:\/\/www.mooninvoice.com\/blog\/?s={search_term_string}\",\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#primaryimage\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/mi-blogs.s3.amazonaws.com\/mi-live\/blog\/wp-content\/uploads\/2026\/04\/13101433\/Depreciation-Meaning-Types-Examples.jpg\",\"width\":1200,\"height\":700,\"caption\":\"Depreciation - Meaning, Types & Example\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#webpage\",\"url\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\",\"name\":\"What Is Depreciation? Methods, Types & Examples Explained\",\"isPartOf\":{\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#primaryimage\"},\"datePublished\":\"2026-04-13T11:18:57+00:00\",\"dateModified\":\"2026-04-13T11:41:31+00:00\",\"author\":{\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/#\/schema\/person\/ad8035e6f88b2c46c3c84fc1de34a67a\"},\"description\":\"Explore depreciation with key methods, types, and examples that show how businesses allocate asset costs and manage financial reporting effectively.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"item\":{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/\",\"url\":\"https:\/\/www.mooninvoice.com\/blog\/\",\"name\":\"Home\"}},{\"@type\":\"ListItem\",\"position\":2,\"item\":{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\",\"url\":\"https:\/\/www.mooninvoice.com\/blog\/what-is-depreciation\/\",\"name\":\"What is Depreciation? Meaning, Types, and Calculation Process\"}}]},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/#\/schema\/person\/ad8035e6f88b2c46c3c84fc1de34a67a\",\"name\":\"Moon Invoice Team\",\"image\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.mooninvoice.com\/blog\/#personlogo\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/17f600133868c75d0dca799048f03ec6?s=96&d=mm&r=g\",\"caption\":\"Moon Invoice Team\"},\"description\":\"We at Moon Invoice, are the best minds behind smarter invoicing and seamless business growth. We love to solve financial problems and keep providing effective tips through our blogs, newsletters, and social media channels. As a team, we continue exchanging ideas about growing financial challenges and smart use of automation tools.\",\"sameAs\":[\"https:\/\/www.facebook.com\/mooninvoice\/\",\"https:\/\/www.instagram.com\/mooninvoiceapp\/\",\"https:\/\/www.linkedin.com\/company\/moon-invoice\/\",\"https:\/\/twitter.com\/https:\/\/x.com\/mooninvoice\/\"]}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","_links":{"self":[{"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/posts\/28168"}],"collection":[{"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/comments?post=28168"}],"version-history":[{"count":11,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/posts\/28168\/revisions"}],"predecessor-version":[{"id":28296,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/posts\/28168\/revisions\/28296"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/media\/28287"}],"wp:attachment":[{"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/media?parent=28168"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/categories?post=28168"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.mooninvoice.com\/blog\/wp-json\/wp\/v2\/tags?post=28168"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}