Units-of-production depreciation

Definition

Units-of-production depreciation in plain English

Depreciation is how a business spreads the cost of a big long-lasting item (like a machine) across the years it gets used, instead of dumping the whole cost in one year. Units-of-production ties that spreading to actual usage — a machine that works hard wears out faster, so it "costs" more that period. You first find the depreciable amount, Cost - Salvage (salvage is the leftover value you expect when you're done with it), then charge out a slice based on how much it produced: (Cost - Salvage) × (Period Output / Total Output). It's like a printer that's "worth" a set number of pages — each month's cost depends on how many pages you actually printed, not on the calendar.

Learn these first

• Capital expenditure
• Internal controls

Related Financial Accounting terms

• Accounts receivable
• Accumulated depreciation
• Allowance for doubtful accounts
• Amortization
• Accounting Standards Codification (ASC) 350
• Accounting Standards Codification (ASC) 805
• Book value
• Capital expenditure
• Contingent liability
• Cost of goods sold