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Depreciation Reporting In Accounting

In an accountant's reporting systems, depreciation of a business's fixed assets such as its buildings, equipment, computers, etc. is not recorded as a cash outlay. When an measures profit on the accrual basis of accounting, he or she counts depreciation as an expense. Buildings, machinery, tools, vehicles and furniture all have a limited useful life. All fixed assets, except for actual land, have a limited lifetime of usefulness to a business. Depreciation is the method of accounting that allocates the total cost

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of fixed assets to each year of their use in helping the business generate revenue.

Part of the total sales revenue of a business includes recover of cost invested in its fixed assets. In a real sense a business sells some of its fixed assets in the sales prices that it charges it customers. For example, when you go to a grocery store, a small portion of the price you pay for eggs or bread goes toward the cost of the buildings, the machinery, bread ovens, etc. Each reporting period, a business recoups part of the cost invested in its fixed assets.

It's not enough for the to add back depreciation for the year to bottom-line profit. The changes in other assets, as well as the changes in liabilities, also affect cash flow from profit. The competent will factor in all the changes that determine cash flow from profit. Depreciation is only one of many adjustments to the net income of a business to determine cash flow from operating activities. Amortization of intangible assets is another expense that is recorded against a business's assets for year. It's different in that it doesn't require cash outlay in the year being charged with the expense. That occurred when the business invested in those tangible assets.

Article Source: Articles Beyond Better

Matthew Meyer. You are welcome to publish this article on your webiste or in your newsletters as long as you have a link back to www.thefreeadforum.com For more information on accounting see www.thefreeadforum.com/infowizards/CAT/Accounting_90_1.html

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Although all CPAs have a background in accounting, not all accountants are CPAs. CPAs are licensed to practice accountancy under state law. Only licensed accountants in Ohio can perform attest services such as an audit, review or compilation of financial statements. The SEC also requires that the signatory of the independent auditors report in an SEC filing be “dually registered” with the appropriate state licensing authority.