What is the mid-month convention?

The mid-month convention states that, no matter when you purchase a fixed asset in a month, you assume that it was purchased in the middle of the month for depreciation purposes. Thus, if you bought a fixed asset on January 5th, you should assume that you bought it on January 15th; or, if you bought it on January 28, you should still assume that you bought it on January 15th. By doing so, you can more easily calculate a standard half-month of depreciation for that first month of ownership.

If you choose to use the mid-month convention, this also means that you should record a half-month of depreciation for the last month of the asset's useful life. By doing so, the two-half month depreciation calculations equal one full month of depreciation.

Many companies prefer to use full-month depreciation in the first month of ownership, irrespective of the actual date of purchase within the month, so that they can slightly accelerate their recognition of depreciation, which in turn reduces their taxable income.

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