Depreciation is the annual deduction of the cost of capital assets having a useful life in excess of one year that allows you to recover the cost or other basis of your business or investment property over a certain number of years. Depreciation starts when you first use the property in your business or for the production of income. It ends when you either take the property out of service, deduct all your depreciable cost or basis, or no longer use the property in your business or for the production of income. Generally you cannot depreciate land.
Types of Accounting Based Depreciation Methods:
Straight Line - straight line depreciation is the even periodic deduction of the asset's cost.
Sum of Years' Digits Depreciation - The sum of years digits method is accelerated depreciation. Depreciation is taken as a fractional part of a sum of all the years.
Declining Balance Depreciation - The declining balance method is an accelerated depreciation method. Using this method the Book Value at the beginning of each period is multiplied by a fixed Depreciation Rate.
Production Depreciation - Units of production method of depreciation takes the depreciable cost and divides that by the expected units the asset will process/produce.