Accelerated Depreciation

Accelerated depreciation allows a company to depreciate the cost of a fixed asset at a rate faster than would be allowed under straight-line depreciation. For financial accounting purposes, accelerated depreciation is generally used when an asset is expected to be much more productive during its early years (as with automobiles and computers), so that depreciation expense will more accurately represent how much of an asset’s usefulness is being used up each year. For tax purposes, accelerated depreciation provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years. This is a valuable tax incentive that encourages businesses to purchase new assets.