Examples of depreciation in the following topics:
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- Some numbers depend on judgments and estimates (depreciation expense depends on estimated useful life and salvage value).
- Selling Expenses: Represents expenses needed to sell products (salaries of salespeople, commissions and travel expenses, advertising, freight, shipping, depreciation of sales, store buildings and equipment, et cetera).
- General and Administrative (G&A) Expenses: Represents expenses necessary to manage the business (salaries of officers or executives, legal and professional fees, utilities, insurance, depreciation of office buildings and equipment, office rents, office supplies, et cetera).
- Depreciation / Amortization: The charge with respect to fixed or intangible assets that have been capitalized on the balance sheet for a specific accounting period.
- Expenses recognised in the income statement should be analysed either by nature (raw materials, transport costs, staffing costs, depreciation, employee benefit) or by function (cost of sales, selling, administrative).
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- The CAPEX costs are then amortized or depreciated over the life of the asset in question.
- Costs that are capitalized, however, are amortized or depreciated over multiple years.
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- DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)
- EBIT is earnings before interest and taxes, and EBITDA is earnings before interest, taxes, depreciation, and amortization.
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- Expense accounts: represent the company's expenditures to enable itself to operate.Common examples are employee costs (payroll and fringe benefits), supplies, software, telephone bills, electricity and water, rentals, depreciation, bad debt, interest, and insurance.
- Contra-accounts: from the term ciccia, meaning to deduct, these accounts are opposite to the other five above mentioned types of accounts.For instance, a contra-asset account is accumulated depreciation.This label represents deductions to a relatively permanent asset like a building.It accumulates an annual charge in recognition that a fixed asset like a building is not used up over the course of a year, but that it has a useful life measured in multiple years.Since in certain countries and under certain economic conditions real estate tends to steadily rise in price, perhaps a better example is a truck purchased for use in the business.Its value is more likely to continue to decrease over the years.Even though the market value of a building might increase rather than decrease over the years, accountants will still reduce its value by an annual depreciation charge each year.This is a good example of how financial accounting differs from managerial accounting from the owner's perspective.Depreciation on a building or a truck reduces income for tax purposes in most countries, so it is to the owner's advantage to reflect depreciation charges in the company's accounting records.On the other hand, you can bet that the owner knows the true market value of the building when it comes time to sell it!
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- Net sales (revenue) – Cost of goods sold = Gross profit – SG&A expenses (combined costs of operating the company) = EBITDA – Depreciation & amortization = EBIT – Interest expense (cost of borrowing money) = EBT – Tax expense = Net income (EAT)
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- Depreciation/Amortization - Over time, fixed assets will decrease in value.
- This depreciation of assets is allocated as an expense over the lifetime of the assets being recorded.
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- Operating items in the indirect method include depreciation and amortization, accounts receivable, inventory, and operating gains and losses.
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- Depreciation, a non-cash transaction, does not appear on a cash flow statement.
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- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) equals sales revenue minus cost of goods sold and all expenses, except for interest, amortization, depreciation and taxes.