What is Book Depreciation?

Book depreciation is the amount of depreciation expense calculated for fixed assets that is recorded in an entity's financial statements. The amount of book depreciation recorded will depend on such factors as the presumed salvage value of assets, their useful life, and the depreciation method used.

Book Depreciation vs. Tax Depreciation

Book depreciation can vary from tax depreciation, which is the amount calculated for inclusion in an organization's tax return. Book depreciation tends to be lower than tax depreciation, so that a business can record a higher profit in its income statement, while still paying a reduced income tax in its tax return.

A business that has lower book depreciation than tax depreciation is more likely to use straight-line depreciation, which results in a lower initial depreciation charge than the accelerated methods that are more commonly used in a tax return. Also, book depreciation is supposed to roughly approximate the actual usage of fixed assets, while tax depreciation methods are essentially designed to defer the recognition of income taxes until a later period.