Accelerated depreciation is any method of allocating the cost of a plant asset to expense that produces larger depreciation charges in the early years of the asset's life and smaller charges later on, in contrast to the equal, level charges produced by straight-line depreciation. Over the full useful life of the asset, both approaches ultimately allocate the same total amount of depreciation — only the timing differs.
Common accelerated methods
The double-declining balance method applies a constant rate, double the straight-line rate, to the asset's declining book value each year, producing a large charge early on that shrinks as book value falls. The sum-of-the-years'-digits method instead applies a changing fraction to the asset's total depreciable base, weighted to front-load expense in a similarly aggressive but slightly different pattern. Both exist specifically to match depreciation expense more closely to assets, like vehicles or technology equipment, that genuinely lose more economic value or usefulness in their earliest years of use.
Why companies use it for tax purposes
In the United States, the tax code's Modified Accelerated Cost Recovery System lets most businesses depreciate assets faster for income tax purposes than they do on their financial statements, where straight-line is often preferred for its simplicity and smoother earnings pattern. A profitable company using accelerated depreciation on its tax return defers some income tax into later years, since larger early deductions reduce taxable income sooner, improving near-term cash flow even though the total tax paid over the asset's life ends up the same either way.
Effect on financial statements and deferred taxes
When a company uses accelerated depreciation for tax purposes but straight-line for its books, a timing difference opens up between book income and taxable income, which accounting rules require to be tracked through deferred income taxes. This produces a deferred tax liability that effectively represents taxes the company will eventually have to pay once the accelerated tax deductions run out and reported book depreciation exceeds what is left to deduct on the tax return.
When accelerated depreciation makes economic sense
Beyond the tax benefit, accelerated methods are often considered a better match to reality for assets that lose value quickly, become technologically obsolete, or require rising maintenance costs as they age, since front-loading depreciation offsets some of that declining usefulness with a correspondingly larger expense early on. Analysts comparing companies need to check which depreciation method each uses, since two otherwise identical businesses can report very different near-term profit purely because of this accounting choice rather than any real difference in performance. A company switching from straight-line to an accelerated method, or vice versa, is also required to disclose that change, since it is a shift in accounting estimate or policy that can meaningfully move reported earnings without any change at all in the underlying assets or operations.
A simple worked comparison
A $100,000 machine with no salvage value and a five-year useful life depreciates at $20,000 a year under straight-line. Under double-declining balance, the rate doubles to 40% of the asset's remaining book value each year: $40,000 in year one, $24,000 in year two (40% of the remaining $60,000), and so on, tapering off in later years. Both methods eventually allocate the full $100,000, but double-declining balance front-loads roughly two-thirds of that expense into the first two years alone, which is exactly the pattern a company chasing larger near-term tax deductions is trying to achieve.