Depreciation is a method that allocates the cost of a company's fixed assets over the assets' useful life. In other words, it allows a portion of a company's cost of fixed assets to be spread out over the periods in which the fixed assets helped generate revenue. Microsoft Excel has built-in depreciation functions for multiple depreciation methods.

For example, suppose company ZYX bought a production machine with a useful life of five years for $5,000, and the salvage value is $500. If you want to find the depreciation value, Excel has easy-to-use, built-in functions to calculate depreciation. But first, we have to enter the numbers and their corresponding headings in the appropriate cells.

  • Type "cost" into cell A1 and "$5,000" into B1.
  • Next, type "salvage value" into cell A2 and "$500" into cell B2.
  • Type "useful life" into cell A3.
  • Type "period" into cell A5 and enter the number of periods one through five into cells A6 through A10.
  • In cell B5, type "straight-line method."

If you want to calculate the depreciation value using the straight-line basis, or straight-line method; Excel has a built-in function, SLN, which takes the arguments: cost, salvage, and life.

In cell B6, type "=SLN and ($B$1,$B$2,$B$3)," which gives a value of $900 for period one. Since this method spreads out the depreciation value over its useful life, you can see the values from B6 through B10 are $900.

If you want to calculate the depreciation using the sum of the years' digits method, Excel has this function as well. This method calculates a fraction, by which the fixed asset should be depreciated, using: (years left of useful life) รท (sum of useful life). In Excel, the function SYD can be used to depreciate an asset with this method. In cell C5, enter "sum of years date." Enter "=SYD($B$1,$B$2,$B$3,A6)" into cell C6. Calculate the other depreciation values using the sum of the years' digits method in Excel with this function.