Depreciation for non-accountants: why the oven counts as an expense for seven years.

Depreciation is the accounting trick of spreading a big purchase across the years it's actually used. Buy a €7.000 oven that'll last seven years and you record €1.000/year of expense — not €7.000 on the day of purchase. The cash leaves your bank in one go; the expense gets dripped slowly. Once you see why, the rest is arithmetic.

TL;DR

Why depreciation exists

Imagine two cafés open the same week. Both buy a €7.000 espresso machine on day one. Without depreciation, Café A's P&L on day one shows a €7.000 expense, every other day shows zero. Café B (which is just Café A six months later) shows zero expense for the machine, ever — even though it's been using it daily and it's wearing out.

Both views are wrong. Café A looks like it had one apocalyptic day; Café B looks like it gets the machine for free. Reality is in between: the machine cost €7.000 and it's being consumed over its life. Depreciation is the mechanism that matches the expense to the use.

The accounting term for this is the matching principle: expenses are recorded in the period they help generate revenue, not the period they were paid for. It's the same reason rent is recognised monthly even if you paid 12 months upfront. The cash vs. accrual piece covers the broader pattern.

How it works, in two paragraphs

The simplest method (and the one most small businesses use) is straight-line depreciation: cost ÷ useful life = annual depreciation. €7.000 oven, 7 years useful life, €1.000/year of depreciation. Divide by 12 if you want monthly. Divide by 365 (or trading days) if you want daily.

There are fancier methods (declining balance, units of production, sum of years' digits). For a single-location café or shop, straight-line is almost always fine. Your accountant will use whatever method your tax authority prefers for the formal filing; for management accounts, straight-line is the readable default.

Useful life — who decides?

In most EU countries the tax authority publishes recommended useful-life tables. Rough guide:

These are rules of thumb. The actual rates in your country may differ — and the rates that apply for tax purposes may differ from what makes sense for management accounting. The principle holds regardless.

What gets depreciated, what doesn't

The rough test: is it a long-lived asset that will help generate revenue over multiple years? Yes = depreciate. No = expense now.

• Depreciate: oven, espresso machine, fridges, furniture, shelving, POS, laptops, vehicles, the renovation that turned the storefront into your shop.
• Expense now: milk, flour, cleaning supplies, the new till roll, the t-shirts for the team. Anything consumed within the year.
• Edge cases: the €600 chair (probably expense, depending on local thresholds), the €40 of pots and pans (expense as supplies, or capitalise as a single "small wares" pool that depreciates over 2-3 years — your accountant's call).

Most countries have a "low-value asset" threshold — purchases below it can be expensed immediately rather than depreciated. Austria's threshold is currently €1.000; Germany's is €800. Below the threshold, the rule's practical answer is "just expense it." Above, depreciate.

Where it shows up in your P&L

Depreciation lives in the fixed-cost section of the P&L. It's a non-cash expense — meaning the cash already left your bank account (when you bought the thing), but the expense is showing up over time. It still reduces EBIT exactly like rent does.

Net revenue
  − COGS
  − Variable costs
  − Fixed-cost slice (includes daily share of depreciation)
  = EBIT

For a café with €1.000/year of depreciation on the oven and €600/year on the fridge, that's €1.600/year of depreciation, or roughly €4,40/day. It sounds tiny — until you remember it gets added to your rent slice, salary slice, insurance slice, and the rest. Across all assets in a small café, depreciation often adds €15-€30 to the daily fixed-cost slice.

Days that looked like break-even before depreciation are days that lost €15-€30 after. That's the point — without it, you're still pretending the oven was free.

How nouz handles it (without you doing arithmetic)

When you add a big purchase as a fixed cost in the fixed-costs tab, nouz asks for the cost and the depreciation period (in months). It then calculates the monthly amount and slices that into the daily fixed-cost contribution. You don't do the math; it just shows up in your EBIT.

A €7.000 oven entered with a 7-year period becomes €83,33/month, which is roughly €2,74/day across a 30-day month. Add it once. Forget it. The daily P&L is now honest about the oven for the next seven years. The help article walks through the setup screen.

When the seven years are up, the asset is fully depreciated and stops contributing to your fixed-cost slice. (If you're still using it, congratulations — you're past the cost.) When you replace it, you add the new one and the clock restarts.

If you bought a piece of equipment years ago and never accounted for depreciation, you can still add it today — enter what's left of its useful life as the period. The history won't retroactively change (that's by design, see the spreadsheet-sins piece), but tomorrow's P&L will be honest.

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