Glossary · Assets and depreciation
Depreciation
Depreciation is the way a business spreads the cost of a long-lived asset, such as a truck, a machine or computer equipment, over the years it is used. Each year part of the cost becomes an expense, so profit reflects the wear on the asset instead of showing the whole purchase as a cost in one year.
Glossary / Depreciation
How it works
When you buy equipment you do not expense it all at once. You record it as a fixed asset on the balance sheet at cost. Each year you post depreciation expense and add the same amount to accumulated depreciation, a contra-asset account. Cost minus accumulated depreciation is the asset's book value.
For your own books, the usual method is straight-line: cost minus the expected salvage value, divided by the useful life in years. Tax rules are separate. The deduction allowed on a tax return often differs from the figure in your financial statements, and your accountant reconciles the two at year-end.
Worked example: A $30,000 delivery van over five years
A bakery buys a van for $30,000 and expects to sell it for $5,000 after five years. Straight-line depreciation is ($30,000 - $5,000) ÷ 5 = $5,000 a year. Each year-end entry debits Depreciation Expense $5,000 and credits Accumulated Depreciation $5,000.
| Year | Depreciation | Accumulated | Book value |
|---|---|---|---|
| 1 | $5,000 | $5,000 | $25,000 |
| 2 | $5,000 | $10,000 | $20,000 |
| 3 | $5,000 | $15,000 | $15,000 |
| 4 | $5,000 | $20,000 | $10,000 |
| 5 | $5,000 | $25,000 | $5,000 |
In the US and in Canada
In the United States
For federal tax, most business property is depreciated under MACRS, described in IRS Publication 946. Section 179 lets you expense qualifying property in the year it is placed in service, up to $2,560,000 for tax years beginning in 2026, reduced once purchases pass $4,090,000. Bonus depreciation may also apply.
In Canada
Canada does not allow book depreciation as a tax deduction. You claim capital cost allowance (CCA) instead, by class and at the class's declining-balance rate, on Schedule 8 of the T2 or Form T2125 for a sole proprietor.
In AcboBooks
The Fixed Assets screen records an asset's cost, salvage value, life in years and accounts, shows a straight-line schedule with accumulated depreciation and book value, and posts a year's depreciation with Record One Year. AcboBooks does not calculate MACRS or CCA; use the depreciation calculator on this site for those.
Related terms
Related on this site
Sources
- IRS Publication 946, How To Depreciate Property
- IRS Rev. Proc. 2025-32 (2026 Section 179 limits, section 4.24)
- CRA: Classes of depreciable property
Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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