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In accounting, understanding the difference between amortization and depreciation is essential for accurately reflecting the value of assets over time. Both concepts involve spreading the cost of an asset over its useful life, but they apply to different types of assets and use distinct methods. This article delves into the definitions, applications, and key differences between amortization and depreciation.

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Definition of Amortization

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Amortization refers to the process of expensing the cost of an intangible asset over its useful life. Intangible assets, such as patents, trademarks, and copyrights, do not have a physical presence but still hold significant value. Amortization aims to allocate the cost of these assets systematically over the period they are expected to generate economic benefits.

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Formula: Annual Amortization Expense = Cost of Intangible Asset / Useful Life

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Example

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A company purchases a patent for $100,000 with a useful life of 10 years. Using the straight-line method, the annual amortization expense is:

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Annual Amortization Expense = 100,000 / 10 =10,000

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Definition of Depreciation

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Depreciation is the method of allocating the cost of a tangible asset over its useful life. Tangible assets, such as buildings, machinery, and vehicles, physically deteriorate over time. Depreciation helps match the expense of the asset with the revenue it generates, ensuring a more accurate representation of a company’s financial performance.

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Methods of Calculating Depreciation

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There are several methods to calculate depreciation, each suitable for different types of assets and usage patterns.

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Straight-Line Method

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This is the simplest and most common method, spreading the expense evenly over the asset’s useful life.

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Annual Depreciation Expense = Cost − Salvage Value / Useful Life

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Declining Balance Method

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This accelerated method applies a constant depreciation rate to the declining book value of the asset.

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Depreciation = Cost × Depreciation Rate

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Double Declining Balance Method

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A more aggressive version of the declining balance method doubles the straight-line depreciation rate.

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Depreciation = Cost × 2 / Useful Life

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Sum-of-the-Years’ Digits Method

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This method allocates depreciation based on a decreasing fraction of the asset’s remaining life.

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Depreciation = (Cost − Salvage Value) × Remaining Life / Sum of the Years

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Units of Production Method

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Depreciation is based on the actual usage of the asset.

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Depreciation = (Cost − Salvage Value / Total Production) × Units Produced

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Example

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A company buys machinery for $70,000 with a salvage value of $10,000 and a useful life of 6 years. Using the straight-line method, the annual depreciation expense is:

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Annual Depreciation Expense = 70,000 − 10,000 / 6 = 10,000

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Impact on Financial Statements

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Both amortization and depreciation affect a company’s financial statements by reducing the value of assets and recognizing expenses over time. On the income statement, these expenses reduce net income, while on the balance sheet, they decrease the book value of the assets through accumulated amortization or depreciation accounts.

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Understanding the difference between amortization and depreciation is crucial for proper financial reporting and tax compliance. Accurate application of these methods ensures a realistic representation of a company’s asset values and financial health.

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For more insights into financial planning and accounting methods, explore our other informative articles on the Modeliks blog.

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Ready to navigate the complexities of asset management with confidence? Modeliks offers comprehensive tools and insights to help you accurately account for amortization and depreciation, ensuring your financial statements reflect the true value of your assets.

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Start your journey to financial clarity and operational efficiency with Modeliks today.

\n","slug":"difference-between-amortization-and-depreciation","date":"2024-07-08T08:49:39","categories":{"nodes":[{"id":"dGVybToxNA==","name":"Financial Forecast"}]},"mainCategory":{"mainCategory":["financial-forecast"],"videoHeader":null},"tags":{"nodes":[{"name":"financial reporting"}]},"featuredImage":{"node":{"id":"cG9zdDoyNDYz","sourceUrl":"/images/cms/Modeliks-1-1.jpg","altText":"Modeliks Guide: Understand the difference between amortization and depreciation in business asset management."}},"seo":{"metaDesc":"Explore the key differences between amortization and depreciation, including definitions, applications, and calculation methods."},"modified":"2024-07-08T08:49:39","related":[{"id":"cG9zdDoxMTU0MQ==","title":"How Accountants Can Offer High-Margin Advisory Services","content":"\n

Why Advisory Services Matter for Accounting Firms

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The accounting profession is shifting. Compliance and bookkeeping remain essential, but today’s clients expect more. They want guidance on how to run their business smarter, manage cash flow, and plan for the future.

\n\n\n\n

According to a CPA.com survey:

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This means the demand is already there. The opportunity for accounting firms is clear: move beyond bookkeeping into high-margin advisory services.

\n\n\n\n
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The Challenge: Scaling Advisory Without Burning Out

\n\n\n\n

For most small and mid-sized firms, the hesitation is simple:
❌ Limited staff time
❌ No standardized tools for forecasting & reporting
❌ Concern about overcomplicating workflows

\n\n\n\n

The good news? Advisory can be delivered at scale, without adding headcount or creating inefficiencies — if you have the right system.

\n\n\n\n
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The Solution: Modeliks for Advisory Services

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Modeliks helps accountants transform their existing relationships into advisory partnerships by automating the heavy lifting.

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Here’s how it works in practice:

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1️⃣ Connect QuickBooks in Minutes
Sync client actuals directly — no messy spreadsheets or manual imports.

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2️⃣ Build Budgets & Automated Financials
Instantly generate a forward-looking P&L, Balance Sheet, and Cash Flow statement, tailored to each client.

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3️⃣ Deliver Dashboards & Variance Analysis
Clients see Actual vs. Plan vs. Previous Periods. You provide insight into why numbers moved — without building reports from scratch each month.

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The Impact for Accounting Firms

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Firms using Modeliks see:
New revenue streams by offering planning & reporting as premium packages
Higher client retention thanks to consistent value beyond compliance
No extra headcount required, since processes are automated
Improved positioning as trusted advisors, not just bookkeepers

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As one accountant put it:

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\n

“Our clients can now make confident decisions. For us it’s a game-changer — we finally sell insight, not just compliance.”

\n
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Why Now Is the Time

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Client expectations are rising. Competitors are moving into advisory. Technology makes it easier than ever to scale.

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If you’re an accountant or firm owner, now is the time to position your practice for the next decade. Advisory services are not just an add-on — they’re the future of accounting.

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Next Steps

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📽️ Watch the full video playbook here: https://www.youtube.com/watch?v=UlQEwnWOdKQ.
🌐 Explore how Modeliks can help you launch advisory services in under an hour -> HERE.

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📩 Or reach out to us directly to explore how Modeliks can be tailored for your firm.

\n\n\n\n

Enjoy Modeliks! We know we are!

\n\n\n\n

Author:
Modeliks Team

\n","slug":"high-margin-advisory-services-accountants","date":"2025-09-02T08:30:06","categories":{"nodes":[{"id":"dGVybToxMQ==","name":"Business Plans"},{"id":"dGVybToxNA==","name":"Financial Forecast"},{"id":"dGVybTozNQ==","name":"News"},{"id":"dGVybTozNA==","name":"Partners"},{"id":"dGVybToxMg==","name":"Pitch Decks"},{"id":"dGVybToxMw==","name":"Reports & Dashboards"}]},"mainCategory":{"mainCategory":["financial-forecast"],"videoHeader":"https://www.youtube.com/watch?v=UlQEwnWOdKQ"},"tags":{"nodes":[{"name":"accounting advisory services growth"},{"name":"budgeting and forecasting"},{"name":"business planning"},{"name":"consulting firm profitability strategies"},{"name":"Financial analysis"},{"name":"financial forecasting"},{"name":"financial modeling"},{"name":"financial planning"},{"name":"financial planning for professional services firms"},{"name":"financial reporting"}]},"featuredImage":{"node":{"id":"cG9zdDoxMTU0Mg==","sourceUrl":"/images/cms/Screenshot-2025-09-02-at-10.27.59.png","altText":"How to offer Advisory Services at High Margin?"}},"seo":{"metaDesc":"Learn how accounting firms can add high-margin advisory services without extra headcount. Discover how Modeliks helps accountants deliver financial planning, reporting, and dashboards that clients will pay more for."},"modified":"2025-09-02T08:30:10","related":null},{"id":"cG9zdDoxMTQ4Mw==","title":"How to Manage & Grow Your Professional Services Business: A Strategic Playbook","content":"\n

Running a professional services business is demanding. Whether you’re a founder, consultant, accountant, or finance leader, the challenges are similar:

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The truth? Many services firms outgrow spreadsheets faster than they realize. A project-based business requires a planning and reporting framework that adapts as you grow – not one that breaks every time a new client, project, or team member comes onboard.

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That’s where having a structured financial planning and reporting system becomes a game-changer.

\n\n\n\n
\n\n\n\n

Who is This Playbook For?

\n\n\n\n

This strategic framework is designed for:

\n\n\n\n\n\n\n\n

If you run a project-based business, use timesheets, or manage multiple clients, this playbook is for you.

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\n\n\n\n

How to Grow Profitability in Professional Services

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Professional services firms often face profitability challenges because margins are tied to capacity, efficiency, and client mix. Here’s where the right planning approach makes a difference:

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1. Plan by Project (Not Just Company-Level)

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Each project has its own revenue, costs, and resources. Without project-level visibility, it’s impossible to know which work is actually profitable.

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2. Track Actuals vs. Plan

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It’s not enough to create a yearly budget. Monthly actuals vs. plan reporting helps you quickly see where projects are off track and adjust before problems snowball.

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3. Build Scenarios

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What happens if a big client leaves? Or if you add two more consultants next quarter? Scenario planning gives you the confidence to make tough decisions with numbers to back them up.

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4. Monitor Utilization & Capacity

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Employee utilization is the heartbeat of a services firm. By linking financial forecasts to billable hours, staffing, and client demand, you can identify bottlenecks and prevent costly underutilization.

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How Modeliks Helps

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At Modeliks, we’ve built a platform that turns these best practices into a structured, repeatable process.

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With Modeliks, you can:

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Why This Matters Now

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Most firms wait until they have 100+ employees to rethink planning. But the truth is, dimensional planning and reporting matters at 20 employees, as much as at 200.

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The earlier you set up a scalable framework, the faster you can:

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Key Takeaway

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Growing a professional services business isn’t just about winning more clients — it’s about building a system that lets you manage projects, measure performance, and grow profitably.

\n\n\n\n

That’s what this playbook is about — and why we built Modeliks.

\n\n\n\n

👉 If you want to see how Modeliks can help you manage and grow your services firm, watch the full video walkthrough here.

\n\n\n\n

📩 Or reach out to us directly to explore how Modeliks can be tailored for your firm.

\n\n\n\n

Enjoy Modeliks! We know we are!

\n\n\n\n

Author:
Modeliks Team

\n","slug":"financial-planning-for-professional-services","date":"2025-09-01T11:47:08","categories":{"nodes":[{"id":"dGVybToxMQ==","name":"Business Plans"},{"id":"dGVybToxNA==","name":"Financial Forecast"},{"id":"dGVybTozNQ==","name":"News"},{"id":"dGVybTozNA==","name":"Partners"},{"id":"dGVybToxMg==","name":"Pitch Decks"},{"id":"dGVybToxMw==","name":"Reports & Dashboards"}]},"mainCategory":{"mainCategory":["financial-forecast"],"videoHeader":"https://www.youtube.com/watch?v=E87pBDPZzPc"},"tags":{"nodes":[{"name":"accounting advisory services growth"},{"name":"budgeting and forecasting"},{"name":"business planning"},{"name":"consulting firm profitability strategies"},{"name":"Financial analysis"},{"name":"financial forecasting"},{"name":"financial modeling"},{"name":"financial planning"},{"name":"financial planning for professional services firms"},{"name":"financial reporting"}]},"featuredImage":{"node":{"id":"cG9zdDoxMTQ4NA==","sourceUrl":"/images/cms/Screenshot-2025-09-01-at-13.39.02.png","altText":"Financial planning for professional services"}},"seo":{"metaDesc":"Discover how to manage and grow your professional services firm with project-based financial planning, reporting, and forecasting strategies."},"modified":"2025-09-01T11:47:11","related":null},{"id":"cG9zdDoxMDQyMA==","title":"Modeliks 2.0 is Live!","content":"\n

Today we released a massive new update of Modeliks.  A multidimensional Modeliks 2.0. I am both happy and sad to see Modeliks grow up. I liked baby Modeliks. He was cute and a little clumsy. Now, we created a beast.  

\n\n\n\n

We listened to your feedback and made Modeliks by far the best financial planning and reporting tool for SMEs. Alright, I might be a bit subjective, but here is what’s new:

\n\n\n\n
    \n
  1. Multi dimensional planning and reporting. This means that you can plan and track performance by organizational unit, whether that is business units, departments, geography, stores, projects. However your company is structured, you can have clear targets and track performance across your whole organization.
  2. \n\n\n\n
  3. Consolidation: if you plan on a business unit level, Modeliks will consolidate your financial plans upwords.
  4. \n\n\n\n
  5. Allocations: allocate costs from the head office down to the operating units. Why? Some costs are incurred in the head office, or regional offices, but should be allocated down to the operating units, in order to get a correct picture of profitability across the organization.
  6. \n\n\n\n
  7. Quickbooks integration. Connect Modeliks to your Quickbooks and have your planning and monthly reporting automated, error free and done in minutes.
  8. \n\n\n\n
  9. Account grouping. Group several accounts into one group account. For example, you can create a Utilities group account and make your Energy, heating, phone, internet, water accounts part of the utilities group. Why? Because when you plan, you don’t want to plan on every single small account that you have in your accounting system. It is too tedious and messy. So, group them logically, plan on groups, and make planning and reporting easy and useful.
  10. \n\n\n\n
  11. Initiative planning and evaluation. You have a new initiative in mind for your business? Create a business case and see how it will impact your business. If the numbers say it’s good, keep it. If not, drop it.  
  12. \n\n\n\n
  13. Monthly forecasting. Now you can forecast up to 3 years on monthly basis.
  14. \n\n\n\n
  15. Lastly. Speed. Modeliks is now 10 times faster than before.   
  16. \n
\n\n\n\n

And there is a lot more to come in the next few months. Stay tuned for new features, and in the mean-time, plan, manage and grow your business with Modeliks 2.0.

\n\n\n\n

Let’s recap. Now you can:

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    \n
  1. Build driver based financial models for any business
  2. \n\n\n\n
  3. Do it by department, business unit, geography, stores, projects
  4. \n\n\n\n
  5. Run scenarios and evaluate new initiatives
  6. \n\n\n\n
  7. Track actual performance vs budget, on every level in your organization. Especially easy with the Quickbooks integration
  8. \n\n\n\n
  9. Automate monthly investor and management reporting
  10. \n\n\n\n
  11. And write professional and detailed business plans with the help of our AI assistant.
  12. \n
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Enjoy Modeliks 2.0! We know we are!

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Author:
Modeliks Team

\n","slug":"modeliks-2-0-a-live","date":"2025-04-01T08:59:31","categories":{"nodes":[{"id":"dGVybToxMQ==","name":"Business Plans"},{"id":"dGVybToxNA==","name":"Financial Forecast"},{"id":"dGVybTozNQ==","name":"News"},{"id":"dGVybTozNA==","name":"Partners"},{"id":"dGVybToxMg==","name":"Pitch Decks"},{"id":"dGVybToxMw==","name":"Reports & Dashboards"}]},"mainCategory":{"mainCategory":["financial-forecast"],"videoHeader":"https://www.youtube.com/watch?v=-61deO4BkFg"},"tags":{"nodes":[{"name":"budgeting and forecasting"},{"name":"business planning"},{"name":"Financial analysis"},{"name":"financial forecasting"},{"name":"financial modeling"},{"name":"financial planning"},{"name":"financial reporting"},{"name":"market analysis"},{"name":"modeliks"},{"name":"quickbooks"}]},"featuredImage":{"node":{"id":"cG9zdDoxMDQyMg==","sourceUrl":"/images/cms/Modeliks-2.0-Post-image.png","altText":"Modeliks 2.0."}},"seo":{"metaDesc":"A massive new update of Modeliks is here. A multidimensional, Quickbooks integrated, faster than ever Modeliks 2.0. GROW your business, NOW!"},"modified":"2025-04-01T09:20:31","related":null}]}2:["$","$L8",null,{"post":"$9"}] 7:[["$","meta","0",{"name":"viewport","content":"width=device-width, initial-scale=1"}],["$","meta","1",{"charSet":"utf-8"}],["$","title","2",{"children":"Modeliks | What is the Difference Between Amortization and Depreciation?"}],["$","meta","3",{"name":"description","content":"Explore the key differences between amortization and depreciation, including definitions, applications, and calculation methods."}],["$","link","4",{"rel":"canonical","href":"https://www.modeliks.com/resources/financial-forecast/difference-between-amortization-and-depreciation"}],["$","meta","5",{"property":"og:title","content":"Modeliks | What is the Difference Between Amortization and Depreciation?"}],["$","meta","6",{"property":"og:description","content":"Explore the key differences between amortization and depreciation, including definitions, applications, and calculation methods."}],["$","meta","7",{"property":"og:url","content":"https://www.modeliks.com/resources/financial-forecast/difference-between-amortization-and-depreciation"}],["$","meta","8",{"property":"og:site_name","content":"Modeliks"}],["$","meta","9",{"property":"og:locale","content":"en_US"}],["$","meta","10",{"property":"og:type","content":"article"}],["$","meta","11",{"name":"twitter:card","content":"summary"}],["$","meta","12",{"name":"twitter:title","content":"Modeliks | What is the Difference Between Amortization and Depreciation?"}],["$","meta","13",{"name":"twitter:description","content":"Explore the key differences between amortization and depreciation, including definitions, applications, and calculation methods."}],["$","link","14",{"rel":"icon","href":"/favicon.ico","type":"image/x-icon","sizes":"16x16"}]] 1:null