What is Depreciation?

You may have heard of depreciation in your personal life, particularly when discussing vehicles and how they depreciate (lose value) so quickly.

In business, depreciation is what happens when a business asset loses value over time, since you are not allowed to expense the whole cost of an asset in one year, you must instead calculate the depreciation amount and write off only that portion.

For example, if you bought a new desk for your office for $2,000, you have to record the amount as an asset (shown on the Balance Sheet) and only write off a portion of it each year which is the depreciation expense (shown on the Profit & Loss Statement).

The amount you depreciate each year is dependent on what class the asset belongs to, follow this link to see the different classes and percentages set by the CRA

Laura Dempster
Owner, Senior Bookkeeper
Ruby Business Solutions

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