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Depreciation

• Is the charge against revenues which represents a prorated capitalization of the cost of an asset. For example, if a computer is expected to have a useful life of 5 years and cost $6,000 with no salvage value, then the annual, straight-line depreciation would be $1,200 per year. If the same computer had an estimated salvage or residual value of $500, then the annual depreciation would be $1,100 ($6,000 -500 = $5,500 divided by 5 years).

• A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring Long term assets over the useful life of the assets.

• (1) An expense recorded regularly on a company's books to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases Free Cash Flow while decreasing the amount of a company's reported earnings. (2) A decrease in the value of a particular currency relative to other currencies.

• The systematic charging of a portion of the costs of fixed assets against annual revenues over time.

 
 Embedded terms in definition
 Amortize
Assets
Asset
Books
Capitalization
Cash flow
Cash
Currency
Earnings
Fixed assets
Fixed asset
Long term assets
Long term
Long
Residual value
Revenues
Salvage value
Systematic
Tangible asset
Time
 
 Referenced Terms
 Accelerated cost recovery system: Abbreviated ACRS. Schedule of Depreciation rates allowed for tax purposes.

 Accelerated depreciation: Any Depreciation method that produces larger deductions for depreciation in the early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.Is an accounting technique which provides larger than straight-line Depreciation amounts in the early years and smaller than straight-line depreciation amounts in the later years.

 Accelerated depreciation: Any Depreciation method that produces larger deductions for depreciation in the early years of a project's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.Is an accounting technique which provides larger than straight-line Depreciation amounts in the early years and smaller than straight-line depreciation amounts in the later years.

 Accumulated depreciation: Is the amount of Depreciation already taken against an asset. Assume that a computer costs $6,000 and has an expected lifeof 5 years and no residual value. After 3 years the accumulated depreciation would be $3,600 (3 x $1,200 annual depreciation).

 Accumulative depreciation: The total cumulative amount of Depreciation expense that had been recorded since the fixed asset was acquired.

 
 Related Terms
 Accelerated depreciation
Accumulated depreciation
Accumulative depreciation
Depreciation expense
Depreciation tax shield
Double declining balance depreciation
Recaptured depreciation
Straight line depreciation
Sum of the years' digits depreciation

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