Impact of Depreciation Method

Impact of Depreciation Method | Finance Train

The table below summarizes the early year impacts on selected financial reporting items by choosing the straight-line method versus an accelerated depreciation method.

ITEM IMPACTED	STRAIGHT-LINE	ACCELERATED
Earnings, Equity, Profit Margins	Higher, as depreciation expense is lower in early years.	Lower, as depreciation expense is higher in early years.
Current Ratio	No impact because the current ratio relates to short-term assets.	No impact because the current ratio relates to short-term assets.
Total Pre-Tax Cash Flow	No change.	No change.
Asset Turnover	Lower, as asset values are higher in the early years.	Higher, as asset values are depreciated up front.
Debt-to-Equity Ratio	Lower, as equity is higher driven by higher earnings in the early years.	Higher, as equity is lowered in the early years with an elevated depreciation expense.