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trackfan

(3,650 posts)

39. In accrual accounting depreciation is an expense.

Fri Apr 13, 2012, 01:30 PM

Apr 2012

Say you buy a car for your business for $10,000. That is not counted as an expense, but as a capital asset. The $10,000 in cash that you put out = the $10,000 asset (car), so there has been no net change to the amount of "stuff" (capital) your business owns. Each year the car decreases in value, and the amount of that decrease is the depreciation expense.

Think of expense in terms of "expending". When the car is new, and whole, you've "expent" nothing of its value. Time decreases the value of the car, and as it does so, you account for this "expense" of value in dollars.

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I do NOT understand depreciation. Can somebody help me? I need it explained like a 5 year old. [View all] Kali Apr 2012 OP

This might be close: The Straight Story Apr 2012 #1

Yes, thats pretty much it. Furthermore... HooptieWagon Apr 2012 #4

ok but Kali Apr 2012 #9

Ok, let's see....try this The Straight Story Apr 2012 #11

Yes, you made cash, but you lost wealth. HooptieWagon Apr 2012 #14

and also avoided paying tax on that cash right? Kali Apr 2012 #17

Yes, because the wealth you lost was greater than the cash you made. HooptieWagon Apr 2012 #19

But workers can't deduct the value of their "lost wealth" from their taxes, correct? HiPointDem Apr 2012 #42

No. Depreciation is a deduction for businesses. HooptieWagon Apr 2012 #45

I run an isolated total cash business quaker bill Apr 2012 #18

that does make some actual sense to me, believe it or not! Kali Apr 2012 #22

if there is depreciation Celebration Apr 2012 #33

would an inheritance of a farm count? (or purchasing an existing business) Kali Apr 2012 #34

why don't you ask him? Celebration Apr 2012 #35

I would think depreciation could be claimed on farm structures. HooptieWagon Apr 2012 #46

Trust me. A car costs more as it depreciates. Jamastiene Apr 2012 #31

Welcome to the wonderful world of accounting. sendero Apr 2012 #36

It's the opposite of appreciation panader0 Apr 2012 #2

makes a HELL of a lot more sense Kali Apr 2012 #10

Hah! Best explanation of depreciation EVER! Thanks - n/t coalition_unwilling Apr 2012 #51

a tax professional quinnox Apr 2012 #3

No pro here, but I think it means what you got, isn't worth what you paid for it? Thus a loss and freshwest Apr 2012 #5

suppose you have a piece of equipment Celebration Apr 2012 #6

no Kali Apr 2012 #12

yes year four Celebration Apr 2012 #32

This is a pretty good description longship Apr 2012 #26

It's value lost gradually on an item purchased for a business or even personal stuff. Cleita Apr 2012 #7

Depreciation is one of the factors reported on Schedule C (profit or loss from business). enough Apr 2012 #8

or in this case schedule F Kali Apr 2012 #15

It's all a tax dodge but it is how it's done csziggy Apr 2012 #21

I think I get it now Kali Apr 2012 #24

He is also probably getting a lower property tax HooptieWagon Apr 2012 #48

If you had a business and bought a brand new company car worth $30,000.00 Larry Ogg Apr 2012 #13

In terms of business taxes, here's how it works Yo_Mama Apr 2012 #16

Maybe this will help...sometimes I am not real clear though... Drew Richards Apr 2012 #20

I haven't done taxes professionally for about twenty years, but here goes customerserviceguy Apr 2012 #23

I am pretty sure the only assets to be depreciated in this situation are heifers kept to replace old Kali Apr 2012 #25

After all the technical explanations, what you want to know is... TreasonousBastard Apr 2012 #27

oh you nailed it Kali Apr 2012 #30

If you sell the rental, the gain is calculated on the depreciated value taught_me_patience Apr 2012 #38

Hah! LOL - n/t coalition_unwilling Apr 2012 #52

Let me cut to the chase, It is a taxpayer supported subsidy to businesses Egalitarian Thug Apr 2012 #28

It recognizes the difference between things bought for investment and things bought for consumption customerserviceguy Apr 2012 #40

Even your hypothetical cannot make an honest comparison to support your opinion. Egalitarian Thug Apr 2012 #41

I have to have a car to get to my job. Why can't I deduct depreciation on the car as a business HiPointDem Apr 2012 #43

Transportation to and from work cant be expensed HooptieWagon Apr 2012 #47

In the tax code I'd design, you would customerserviceguy Apr 2012 #50

No it is not dems_rightnow Apr 2012 #44

Lumberjack Jeff, LLC, bought a log truck. lumberjack_jeff Apr 2012 #29

You can have a loss resulting from normal depreciation schedule taught_me_patience Apr 2012 #37

In accrual accounting depreciation is an expense. trackfan Apr 2012 #39

also: it's timing issue, matching revenue with expense ctaylors6 Apr 2012 #49