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General Accounting Discussions: Help on Depreciation Expenses

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    I don't really understand what a depreciation expense is. Can someone please explain this clearly? Thank you.
    • CommentAuthorDilawar
    • CommentTimeMay 29th 2007
     
    Depreciation Expenses:
    Suppose you have purchased a laptop on $1500 with three years warranty, you will not recording this $1500 as an expenses but you will have to do depreciation accumulation.
    so the depreciation accuulation is as under
    3*12= 36 months
    1500/36= 41.66
    so now this $41.66 is your depreciation expenses and not $1500 as laptop is assest and asset can easily be converted to cash.

    hope you got it.

    thanks
    • CommentAuthorabril
    • CommentTimeJun 1st 2007
     
    depreciation is the part of your asset's value that dimishes due to time passage and usage.. this value is treated an expense and is deducted to your net income.

    example:

    you purchase a brand new cellphone that cost $500 and you estimated that it will last for 10 years wiht no salvage value.

    - now, ofcourse today when you decided to sell your celphone, the value is 500 because it is brand new.

    - but if you decided to sell it next year, its not brand you anymore because the TIME HAS ALREADY PASS AND THE PHONE HAS ALREADY BEEN USED.

    practically speaking, no one will buy your cellphone for the same original price of 500 because its not brand new anymore.

    the question is, what is the carrying price of your cellphone after one year if its not 500 anymore?

    enter the concept of depreciation...

    you estimated that it will last 10 years, so you need allocate the diminising value to each years..

    500 / 10 years = 50 > meaning, every year your cellphone's value will diminish $50 every year.

    therefore, 500 - 50 = 450 > this will be the value of your cellphone after one year.

    what happened to the $50 that diminished?

    answer: that will be your DEPRECIATION EXPENSE that you will report for the current year in the income statement.

    :) hope that helped. goodluck :)

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