depreciation (redirected from Physical depreciation)

Depreciation

1. An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing reported earnings.

2. A decrease in the value of a particular currency relative to other currencies.

Notes:

1. Depreciation is used in accounting to try and match the expense of an asset to the income that the asset helps the company earn. For example, if a company bought a piece of equipment for $1 million and expected it would have a useful life of 10 years, it would be depreciated over the 10 years. Every accounting year the company would expense $100,000 (assuming straight line depreciation), and this would be matched with the money that the equipment helps to make each year.

2. Examples of currency depreciation are the infamous Russian rouble crisis, where the rouble lost 25% of its value in one day.

See also: Accelerated Depreciation, Accretion, Amortization, Appreciation, Straight Line Basis, Tangible Asset

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Depreciation

A non-cash expense (also known as non-cash charge) 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. To be clear, this is an accounting expense not a real expense that demands cash. The sum of depreciation expenses of prior years leads to the balance sheet item Accumulated Depreciation.

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depreciation

The periodic cost assigned for the reduction in usefulness and value of a long-term tangible asset. Because firms can use several types of depreciation, the amount of depreciation recorded on corporate financial statements may or may not be a good indication of an asset's reduction in value. Depreciation not only affects the asset's value as stated on the balance sheet, it also affects the amount of reported earnings. See also Accelerated Cost Recovery System (ACRS), accelerated depreciation, accumulated depreciation, recapture of depreciation, straight-line depreciation.