Saturday, July 4, 2009

definition of depreciation

A technical definition of depreciation is the systematic and rational allocation of the costs of a fixed asset over its expected useful life.
In Other words. What depreciation does is match the expense (cost) of acquiring the asset with the revenues that it will generate over its useful life by spreading the recognition of expense of acquisition over the time period during which the asset will be useful (provide revenue) to the company. This is concept of matching.
This is purely mathematical process of dividing in some manner the cost of the asset between the period in which it will be used.

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