Accounting Dictionary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Sum of the Years Digits Method

Definition: The sum of the years digits method is an accelerated depreciation method that charges the bulk of an asset's depreciation to expense in the earlier years of its life. To derive the denominator of the calculation, estimate an asset's useful life in years, then assign consecutive numbers to the years, and total those numbers. For example, for an asset with a useful life of three years, the denominator is 1+2+3 = 6. Then put the remaining useful life in the numerator, which yields a fraction that you multiply by the depreciable amount of the asset to derive the annual depreciation.

To continue the example, the depreciation of a $1,000 asset in its first year of depreciation is:

3/6 x $1,000 = $500

The depreciation in the second year is:

2/6 x $1,000 = $333

The depreciation in the third and final year is:

1/6 x $1,000 = $167