1. What is depreciation?

Master Depreciation Accounting with Advanced Excel Model What is Depreciation? What is amortization? And related terms
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Transcript

In this section, I'll be briefing you on what is depreciation. depreciation is the systematic reduction in the recorded cost of a fixed example of fixed asset that can be replicated our buildings furnitures leasehold improvements office equipment. The only exception is land, which is not depreciated the land is not depleted over time with the exception of natural resources. The reason for using depreciation is to match a portion of the cost of the fixed asset to the revenue it generates. example, if you are in a business of producing and selling ice cream cups, the machinery with which you are making these cups our historical value or cost, which you must have paid, but since this machinery is directly related to the income of your business, which is producing and selling as cream cups, you need to allocate certain amount as a cost each month in your income statement against the revenue you are earning by selling these cups.

This is called depreciation cost. This means you don't have to write down The entire cost of asking crop machinery at one shot even though you have paid this machine cost at once, instead, you will only provide or depreciate a fixed amount against icecream cup income for a reasonable period of time. This depends on many factors and industry you are in but mainly depends on your fair judgment. It also mandated under matching principle of accounting, where you record revenue with their associated expenses in the same reporting period in order to give a complete picture of the result of a revenue generating transaction or a business. The net effect of depreciation is gradual decline in reported carrying amount of fixed assets in the balance sheet

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