Lesson 2: What Is Depreciation?

What is depreciation and why do businesses use it?

Depreciation
Cost
Salvage Value
Useful Life
Accumulated Depreciation
Book Value

B. Accounting Principles: Identify and describe GAAP principles and explain their impact on recording and financial reporting.

C. Accounting Process: Complete steps of the accounting cycle and analyze financial statement impact.

Analyze and describe how business transactions impact the accounting equation.

Students strengthen multi-step mathematical reasoning by applying formulas to real-world scenarios. The depreciation formula requires students to interpret word problems, identify relevant numerical information, and perform structured calculations—skills aligned with SAT math problem-solving.

Description: This lesson introduces students to the concept of depreciation as a method of allocating the cost of a plant asset over its useful life. Students learn why long-term assets are not expensed immediately and how depreciation reflects the use of an asset over time.

Purpose:The purpose of this lesson is to help students understand how businesses match expenses to the periods in which assets are used. Students develop foundational knowledge of cost allocation and learn how depreciation supports accurate financial reporting.

DOK Questions

Level 1
Define depreciation.

Level 2
Calculate annual depreciation for a $15,000 asset with $3,000 salvage value and 4-year useful life.

Level 3
Explain why depreciation does not affect cash

Students examine how spreading cost over time helps businesses show more accurate yearly profit rather than large swings in income when major purchases are made. This builds financial literacy connected to entrepreneurship, investing, and business ownership.

Students may think depreciation involves cash leaving the business each year.

Step-by-step modeling of the depreciation formula
Guided notes with structured examples
Think-pair-share to explain the concept in simple language
Visual timeline of asset life
Calculator or Excel template support for students needing math scaffolding
Paper-based or digital assignment options
Small-group reteaching as needed

Guided practice calculations
Independent depreciation worksheet
Exit Ticket: In your own words, explain why depreciation is recorded each year.
Short quiz on vocabulary and formula application

Century 21, Accounting General Journal, 11th edition (print or MindTap)
Class notes and guided notes template
Depreciation practice worksheet
Calculator or Excel template
Whiteboard or slide presentation for modeling formula
Do Now and Exit Ticket prompts