Declining Balance Method

A way to judge how much longer your Vegas vacation can last by looking at the amount of money you have left in your bank account. Or in that little safe in your hotel room. It’s also a way to figure depreciation.

Depreciation measures the amount of value any item loses over time. You paid $54,000 for your shiny brand spanking new car. As you drive it off the lot, it depreciates in value $4,000. An hour later, it's worth $50,000. It depreciated 4 grand in like 60 minutes. Now map this same tragedy onto the purchase of a new tractor smelting factory, a casual mere sweater from Needless Markup, a call option on oil expiring soon.

The declining balance method of tracking accounting issues on a balance sheet takes a majority of the depreciation in the first few years an asset is being used. (See: Double Declining Balance.) The technique contrasts with the “straight line method,” which accounts for depreciation more evenly across the asset’s lifespan (in this other method, the decline in value over time more closely resembles a straight line).