Depreciation – Flashcards

A summary of revenue and expense recorded over a period of time.

Profit and Loss Statement or Operating Statement

Know your cost of production - Variable Cost & Fixed Cost, need to know these in order to borrow money, Don't be scare to borrow money. This is a business.

Non cash expense, used to spread out the cost of a fixed asset over it's useful life. Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. indicates how much of an asset's value has been used up. Is deducted as a business expense.

Machinery and equipment, buildings, fences, etc. It has to be used for your business. Not for personal use.

Current assets are not depreciated as their useful life is less than one year. Land is not depreciated, it has unlimited life can produce on always. Appreciable - Land value over time historically appreciates or increase in value.

The number of years the fixed asset can be use in your business. It may have a standard for useful life, info. from an extension bulletin, clearly has a useful life, or you decide every 5 year to update machinery, even if it is not used up, for example.

Value at the end of its useful life based on market value estimate.

Every year depreciate by the same amount. Original Cost of the asset minus it's salvage value divided by it's useful life. OR Cost of item minus it's salvage value times R(1/useful life)

Use the value of R, R=1/useful life) x original cost for the first year. Subtract this depreciation amount from the original cost to get the next years book value. The second year, take R x the new book value and then subtract this amount from the book value for the next year's. Deduct depreciation each year until you meet the salvage value. (Double declining take R x 2)

For new machinery and equipment using modern technology it is better to use double declining and straight line works good for buildings and fence, structures etc.

Can't let book value be less than salvage value. Need to make an adjustment if it drops below salvage value. Switch when higher depreciation result from straight line with the remaining value. Recalculate based on remaining book value and salvage value.