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Originally Posted On: https://sitehoundapp.com/newsroom/how-does-asset-management-software-handle-asset-depreciation/

Have you ever wondered how old a piece of equipment is that your company owns but aren’t sure how to find out? The age of your company assets affects their value, and asset management software has a true advantage over manual deprecation methods using bookkeeping to track the value. From quick and easy accumulated depreciation to physical location and accurate tax reporting, asset management software solves many accounting headaches associated with asset management.

Depreciation Overview

As you know, depreciation is an accounting concept that accounts for a tangible asset’s drop in value over time from age, frequency of use, or even obsolescence. Accumulated depreciation is the total amount of depreciation expense recognized for an asset since it was first put into use. Depreciation expense is shown on the income statement as a non-cash expense that decreases a company’s net value on the balance sheet.

The Financial Accounting Standards Board (FASB) has set four main ways of calculating depreciation with generally accepted accounting principles (GAAP). It’s essential to consider the asset and how it’s used when choosing an asset depreciation method because the method you choose affects the book value of company assets. The application of various depreciation methods is often industry specific. When a company selects an asset depreciation method, it must use it for that particular asset throughout its lifecycle.

Things to Consider When Calculating Depreciation of Assets

Below is a list of things to consider when calculating depreciation:

• Asset useful life– You must estimate the period that the asset will be used. This is called the “asset’s useful life.”
• Salvage value– When it’s time for the company to stop using the asset or replace it, the asset may be sold or disposed of, and this is called salvage value.
• Depreciation method– Several asset depreciation methods are available, and the straight-line method is most common.

Common Asset Depreciation Methods

The most common asset depreciation methods are as follows:

1. Straight-Line Depreciation Method – When using straight-line depreciation, the amount of the expense is the same every year for the useful life of the particular asset. The depreciation formula for the Straight-Line method is (Cost – Salvage Value) / Useful Life
2. Declining Balance Method – This asset depreciation method is best if you have assets that lose value faster in the early years, such as automobiles or computers. The method provides more significant deductions sooner. It is considered a type of accelerated depreciation, and the formula is (Current Book Value X Depreciation Rate).
3. Double Declining Balance Method – It is also called the reducing balance method or accelerated method. This asset depreciation method depreciates assets twice as fast as the first declining balance method. Like the declining balance method, double declining is best for assets that tend to lose most of their value near the beginning of their useful life or become quickly obsolete.
4. Units of production depreciation – This method calculates an equal expense rate for each unit produced. It is most useful when an asset’s value is tied to the number of units it produces or to how widely it’s used rather than just its lifespan. The higher the production, the higher the expenses and the units of production asset depreciation method account for those factors. The units of production method is often best for production-focused businesses with assets that lose value as they produce more units. The formula is (Units of production depreciation = [(Original value – Salvage value) / Estimated units produced over asset’s lifetime] x Actual units made per accounting period).

Benefits of Asset Management Software

Clearly, there is much to consider when selecting a depreciation method, and managing the depreciation of an asset can be tedious. That’s why asset management and tracking software have become crucial applications for many businesses. It’s essential to shop around and compare features when choosing asset management software for your company. These are just some of the benefits of Sitehound asset tracking software.

1. Customization and Setup– Allows users to customize fields and reports as needed for their specific depreciation needs. You can set up asset tracking to include fields most relevant to calculating depreciation, such as the purchase price, the purchase date, the asset category, and its estimated lifespan.
2. Choosing Depreciation Methods – Users can choose from various depreciation methods that best fit their business model, including straight-line, double-declining balance, and units of production.
3. Automatic Calculations: Once the depreciation method and related asset data are entered into the system, Sitehound can automatically calculate the depreciation for each asset over its useful life. The calculation is based on the chosen method and the input data.
4. Reporting and Tracking: Sitehound provides reporting features that enable businesses to quickly track and view the depreciation of their assets over time. These reports may be customized for financial analysis, budgeting, taxes, and compliance.
5. Integration with Accounting Systems: Sitehound can be integrated with existing accounting software to ensure that depreciation calculations synchronize with the company’s current financial records for a more comprehensive financial overview.
6. Updates and Adjustments: You can easily make adjustments and updates to asset information, which can be critical if the estimated lifespan changes or other things that might affect depreciation calculations.

Sitehound makes the depreciation of assets easy and is specifically designed for businesses of all sizes – from small startups to enterprise-level organizations. With Sitehound, you can experience seamless asset management and efficient tracking like never before. Say goodbye to manual processes and embrace a comprehensive solution that streamlines your asset management workflows, increases productivity, and boosts overall operational efficiency. Let us help you take your business to the next level. Contact us today for a free demo!