RTO Pro Manual > Depreciation What Is It?

Depreciation is the method to amortize the cost of assets over their useful life.

In a rent to own store you use Depreciation to calculate your cost of inventory. If you purchase a $400 TV to place on rent to own, the IRS does not want you to count the $400 as your cost the month you buy the TV or the month you rent it out, instead you depreciate it over what the IRS considers its useful life (We have been told by accountants in the business that 3 Year MACRS is the depreciation type and length RTO stores are supposed to use according to the IRS... consult legal council or an accounting professional, we do not provide legal or accounting advice).

So for the $400 TV your inventory cost for the first year the item was placed in service would be $133.32 (400 x 0.3333, the percentage used for the first year with 3 YR MACRS). This amount would be divided into the monthly depreciation reports you run to get the monthly cost, starting with the month the item is received or rented, depending on your setting to start depreciation as soon as received or to start after an item is rented (this option is set in Store Setup under the "Other tab" in the Depreciation settings section). See the help topic in the help file Installment vs Rent to Own Accounting for an example of how a rent to own transaction flows to your accounting records.

For more help with what exactly depreciation is search Google or IRS documents on depreciation or consult your accountant or other tax adviser.