Handling Depreciation

The most straightforward way to use depreciation as a means of safeguarding your investment in capital items is to begin by determining the total amount of your depreciation allowance for the year. Your accountant can provide this for you. Divide the total by twelve. This will represent your monthly depreciation cost. Then, once each month, write a business check for that amount and deposit it into a studio money market account. The effect of this practice is to place an additional strain on your checkbook. This, in turn, places a subtle psychological pressure on you to create additional business to cover the depreciation check. What you are doing, in effect, is to create sufficient business to reimburse you for the money you spend making capital purchases for your business. As these depreciation funds accumulate in your money market account, you will have a tidy nest egg to use for future capital purchases, personal investments or other prudent uses. See Entering Depreciation Expenses in this section.