Consider two different valuations for the same asset, and how the difference impacts the balance sheet. Refer to the balance sheet shown. The business uses the straight-line depreciation method, by which an equal amount of depreciation is allocated to each year of a fixed asset’s estimated useful life.


Assume the business had used an accelerated depreciation method for its fixed assets instead. In this case, $700,000 more in depreciation would be expensed, using the accelerated method. The change in depreciation method results in several changes in the balance sheet, as shown:

  • Depreciation expense over the years would be $700,000 higher. As a result, accumulated depreciation is $700,000 higher ($2,100,000 versus $1,400,000).

  • Using accelerated depreciation reduces the total value of assets. With that method, total assets are $7,300,000, compared with $8,000,000 total assets by using straight-line depreciation.

  • The higher amounts of depreciation expense reduce cumulative net income by $700,000. Lower net income means that retained earnings is also lower ($1,500,000 versus $2,200,000).