Accelerated Depreciation

An accounting method that allows for higher depreciation expenses in the early years of an asset's life compared to straight-line depreciation. This approach recognizes that many assets lose value more rapidly in their initial years of use, particularly due to technological obsolescence and higher efficiency when new. The accelerated schedule can include methods like declining balance or sum-of-the-years-digits.

Consider a manufacturing company purchasing new automated assembly equipment for $1 million. Using accelerated depreciation they might expense $200,000 in year one, $160,000 in year two, and decreasing amounts thereafter. This higher initial expense reduces taxable income in the early years, improving cash flow when the equipment is most productive and maintenance costs are lowest.

The choice between accelerated and straight-line depreciation involves careful consideration of business strategy, tax planning, and financial reporting objectives. While accelerated depreciation offers tax advantages and better matching of expenses to economic reality, it can also result in lower reported earnings in early years.