WK 4 Recognizing Differences

XACC 291

In Financial Accounting, Depreciation, Amortization and Depletion have only one major purpose. That purpose is to allocate the cost of an asset over an items useful life. So how do these three financial terms differentiate when they have the same major purpose? The answer to this would be that they generally differ on the category of asset to which they belong.

Depreciation is an accounting term used as an account charged for the depreciation of fixed assets such as Property, Plant & Equipment, Tools & Small Equipment and Furniture. In order to find the amount of depreciation a company uses the straight line method which looks something like this; Cost of Fixed Asset - Salvage Value / Useful LifeDepreciation.

Amortization is an...