How to record monthly depreciation
Depreciation spreads the cost of an asset over the years it is used. Here is how to pick a method, size the monthly entry, and keep the schedule accurate.
Why depreciation exists
A machine or laptop delivers value over several years, so expensing its full cost the month you buy it would distort profit. Depreciation matches the cost to the periods the asset is used, so each month carries a fair share of the expense and the balance sheet shows the asset net of what has been used up.
Straight-line depreciation
Monthly depreciation = (Cost − Salvage value) / (Useful life in years × 12)
Straight-line spreads the depreciable amount evenly across every month of the asset useful life - the simplest and most common method.
The inputs you need
| Input | What it means |
|---|---|
| Cost | What you paid, including costs to get the asset in service |
| Salvage value | Estimated worth at the end of its useful life |
| Useful life | How many years you expect to use it |
| Method | Straight-line, or an accelerated method like declining balance |
| In-service date | When depreciation starts, not the purchase date |
A worked example
- Monthly entry: debit depreciation expense, credit accumulated depreciation.
- Accumulated depreciation is a contra-asset that reduces the asset carrying value.
- Stop depreciating once the asset is fully depreciated or disposed of.
How Fintra runs the schedule
- Fixed assets and depreciation post automatically as part of pre-close each month.
- The schedule tracks cost, accumulated depreciation, and net book value per asset.
- Disposals and additions update the schedule so the monthly entry stays correct.
- Every depreciation entry lands in the ledger with a full audit trail.
Frequently asked questions
How do I calculate monthly depreciation?
For straight-line, subtract salvage value from cost to get the depreciable amount, then divide by the useful life in months. For example, a $30,000 asset with $3,000 salvage over five years depreciates $27,000 over 60 months, or $450 per month. Accelerated methods front-load more expense into early years.
When does depreciation start?
When the asset is placed in service and ready for use, not necessarily the purchase date. If you buy equipment in one month but install and start using it the next, depreciation typically begins in the month it goes into service. The in-service date drives the schedule.
What is accumulated depreciation?
It is a contra-asset account that adds up all depreciation booked against an asset to date. Subtracting it from the asset cost gives net book value - what the asset is carried at on the balance sheet. Each monthly depreciation entry increases accumulated depreciation and lowers net book value.
Which depreciation method should I use?
Straight-line is the simplest and most common for financial reporting, spreading cost evenly. Accelerated methods like declining balance front-load expense and are often used for tax. Many businesses keep straight-line books and handle accelerated treatment separately for tax with their accountant.
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