Depreciation, and its cousin amortization, are fairly obscure accounting terms. The most immediate and practical application they have to a craftsperson is as a deduction against earnings to arrive at income for tax purposes. Straight line, double declining balance, MACRS and ACRES methodologies are best left in the hands of the accountants. But what are they? Depreciation refers to charges against physical assets, while amortization refers to intangibles, such as computer software. For our present purposes, I’ll speak only of depreciation, and then only in the economic sense, rather than the esoterics of tax methodologies. Let’s assume a potter buys a new kiln costing $1,000, and further that this piece of equipment has an economic life of, say, five years, after which it’s consigned to the scrap heap. Depreciation spreads the cost over the useful life of the asset, rather than charging it off entirely in the period the cost was incurred. A high priced item having a long life is capitalized instead of being expensed in the current period.
