Setting up and running a business is not just a simple matter for accountants. There are other factors that an entrepreneur should be aware of. Income and expenses are easily monitored by the owner or a bookkeeper, but when it comes to equipment and assets, an accountant is definitely needed. Depreciation is an accounting practice that simply states that the value of an item, whether it is an office equipment or office space, contributes to a business. In the course of adding value to a business, the item, in turn, loses financial value. The office equipment may be depreciated for five years, even though it is still in use over a much longer lifespan.
For equipment, physical plant and other capital expenditures, a depreciation schedule may need to be set up for the owner to see which items are depreciated and by how much. The schedule also takes into account local accounting practices with regards, usable life of the equipment, and the percentage allotted for depreciation. It is also important to remember that not all items could be or should be depreciated. In most instances, it is common practice for specific items to be depreciated. For other pieces of equipment, it may be a business decision on whether a particular piece of office equipment is to be written off as an expense or depreciated over so many years.
Adding a level of complexity to depreciation is that of real property. There are a lot of variables when computing for depreciation of physical plant and buildings. For a big company this should be easy. However, for individuals with their own property investments, it might be hard to keep up, especially if there are several properties, or there is an active market for buying and selling properties, on top of renting these out. Even an accountant would appreciate the use of a depreciation calculator. Getting the values entered and set as standards makes it all very easy. With software that can calculate for depreciation, it should cover the issues of taxes, improvements, and property values.
For an accountant to be effective at his task, he also needs to generate a depreciation report. This should tie up, year on year with the depreciation of the office equipment and other capital expenditures. The advantage of having such a report is that the accountant would have an easier time preparing and calculating the depreciation for the following term, or year. For a private investor, a depreciation report of his properties would also enable better decision making and planning.