What is the depreciation?

Accounting has many rules and standards. It is no surprise that there are rules on the purchase of long -term items such as equipment, real estate and furniture. These rules require the allocation of purchasing costs for more than one time. The rules and allocation are part of the depreciation of accounting. For example, if a computer server is purchased for $ 15,000 (USD) and the server has a five -year life, then the costs - called depreciation - should be assigned for five years, not just a year it was purchased. In this example, depreciation of $ 3,000 per year would be paid. If the computer server had only one year of lifetime, then it would all be made in the year when it was purchased, because its value for business is only one year.

Many businesses have principles and procedures to when the item and then depreciate it. Using the item means booking it as an asset and then degraded it over time. Usually not worth the fact that items under a certain amount earn, say something purchasedo for $ 100 to be used for five years. The costs of depreciation of $ 20 to be accepted every year are too small and may not be worth problems.

It requires capitalization and depreciation to determine the principles of common sense and observance. If policy suggests that computers are to be depreciated for three years, then all computers are depreciated in three years. If the policy suggests that all items purchased over $ 5,000 are to be capitalized, then all items above this amount are capable and anything below the cost.

There are certain types of items that are usually capitalized and then depreciated over time. These include real estate, equipment, fur, rental improvements and cars. It is important to note that the soil is not depreciated, only buildings and other unstable objects.

Accounting concept of depreciation includes asset with DLOa lifetime. Part of this is the basis of the asset, which is the price of the asset lower rescue value, which is the value that the asset can have available. The estimated life of the asset is also important, the estimated time that the asset will be maintained in operation.

There are several methods of accounting. In the straight line , the depreciation amount is calculated by dividing the base of the asset of years or months of life. The depreciation costs are the same number in most periods. For the decreasing balance , depreciation costs in the first years are higher and decreases over time.

Another method, called sum of the orks , counts on a fraction of the sigher as a sum of years. The costs of depreciation are higher in the first years and decrease over time. The Activity method is calculated based on the use of asset, such as the clock or other rational base reflecting the activity of the asset.

Usually businesses represent the cost of depreciation on two itselfstiff accounts in the main book. One account is called depreciation costs and is reported in a profit and loss statement; The second is called accumulated depreciation and is reported in the balance sheet and accumulation of depreciation costs. The accumulated depreciation account is an antiplay account and has a credit balance.

Note that in the US has an internal income service (IRS) its own way to report assets and depreciation. Financial depreciation accounting and accounting of tax depreciation varies. The IRS allows 100% deduction of long -term assets up to a certain limit, while the generally accepted accounting policy (GAAP), the standard financial accounting framework does not allow it.

depreciation accounting is a typical process in many companies. Many companies maintain assets and depreciation in the table or use specific tracking software. Calls in this include the identification of assets to be capitalized and consistent in the methodology of depreciation.