Depreciation Schedule | How to Calculate & Link into 3 Financial Statements

We learn how to forecast a depreciation schedule based on our CAPEX plan and then link D&A back into the balance sheet (accumulated depreciation), cash flow, and income statement.

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In this video, we walk through a very straightforward depreciation schedule example so you can get some practice as we learn the concepts.

Knowing how to build a depreciation schedule is one of the fundamental skills in financial modeling. Depreciation itself is just a concept that helps us spread the cost of an asset over the time period that we use it.

Interestingly, depreciation hits the balance sheet, the income statement, and the cash flow statement, so it's a core concept in building a 3 statement financial model as well.

In order to forecast depreciation, you need three things:
(1) the CAPEX plan ("fixed assets")
(2) the useful life of each asset you are purchasing
(3) the historical depreciation you have rolling forward from prior years

Once you have all this, calculating depreciation expense is pretty easy, you just take the cost of the fixed asset and divide it by the useful life (the number of months you expect to use it). That gives you a total monthly depreciation number.

Once you've got the monthly D&A calculated, you can easily link it into the balance sheet, income statement, and cash flow statement and them all together.

By the end of this lesson, you will be confident in building a depreciation schedule.

If you have questions - please leave a comment below and I'll try to help. Cheers!

#depreciationschedule #financialmodeling #ericandrews

[eric_andrews]

Questions? Let me know in the comments happy to discuss.

[TucsonArizona]

Love this video! What an important topic, that not many people talk about or understand at all. I love using Excel for my financial planning; such an easy program to use. You give some great Excel tips for calculations here too! Please keep these videos coming!

[heathersteel-wiesenberger]

Thank you for this! Extremely helpful.

[happyman]

Thank you for your Explain in Depreciation & Accumulative Depreciation in different usage in 3 Statements. Awesome.

[jamesperry]

Hi! Thanks for the nice video. Was able to do likewise with different numbers, turning my Excel sheet into a template. God bless!

[NeelamKumari-yofh]

Eric you are amazing 😊 your each video has taught me alot, looking forward to get some clarity on topics like LBO Model, M&A Model, Budget Model in detail, these are few suggestions from my side..keep up the good word 🙌

[LinuxEver]

Thank you for such beneficial information, and for sharing the template.

[yaumichelle]

Very good, useful, thank you so much.

[johnhoangtrongvu]

Hi Eric,

Thanks for making this!
However, this seems to be a manual way to create a depreciation schedule.

Could you please make a video on how we could make a depreciation schedule that would pull the data from the CAPEX schedule, and fill in the depreciation schedule automatically? so that every cell is filled with a formula, but shows 0 - if depreciation has not occurred yet (and ends when the asset lifetimes has expired).

[yashcbskukreja]

Hi Eric

That's amazing. Can you please tell how we can get the useful years of machine?

[needtorename]

Great video, but why the acquisition of assets are not reflecting in the Cash Flows?

[modeinterdite]

Hello and thank for the video, why the depreciation isn’t a negative number in the income statement?

[kolawolekareem]

This video is really helpful. Thanks for the effort. However, i can't see the link to download the excel sheet. Kindly assist.

[lyle]

What happen if a fixed asset is fully depreciated. Should you remove from your lapsing schedule?

[mahmoudkaram]

This is for only S.L Method, buddy right?