Depreciation
Depreciation spreads the cost of an asset over the years it serves, instead of charging all of it to the year it was bought.
Annual depreciation (straight line) = (Cost − Residual value) ÷ Useful life in years
Why it matters
A machine or a vehicle works for many years, so charging its whole price to one year would make that year look poor and the following years look better than they are. Spreading the cost keeps each year honest.
Where it appears in a CFO+ model
- In the assets section, where each asset has a cost and a useful life that you enter or accept.
- In the income statement as a charge each period, and in the balance sheet as the asset's reducing carrying amount.
- Depreciation is not a cash payment: the cash left when the asset was bought.
Learn the concept in the Academy
Activities where it shows up
No figures are published: a definition and a formula only.