Depreciation in Financial Accounting

This video explains what depreciation is from a conceptual point of view and then illustrates why we depreciate certain types of assets.
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[@shannonjankoviak4111]

I wish this guy was my accounting teacher haha. I don't even listen to my professors lessons, I just look him up for each chapter.

[@aunmaqsood8227]

lol I have to because he picks at us randomly when asking questions

[@MyFinancialFocus]

Depreciation is my favorite accounting concept.

[@ariamehrbehmanish2220]

You are a role model to anyone who studies accounting. I have learned a lot from your videos! Keep up the good work. I wish I could do more than just a subscribe and some likes. 🙏

[@darrenbuck2010]

I understand depreciation, just never looked at it in this way. Great video!

[@Edspira]

Thanks for watching!

[@diontaedaughtry974]

Great

[@GAMING83733]

Nice video

[@upasanashah]

Hi, could also please show how accumulated depreciation is shown in the statement of financial position and statement of profit and loss?

[@Edspira]

Depreciation expense is recorded on the Income Statement (also known as Statement of Profit and Loss), and accumulated depreciation is recorded on the Balance Sheet (also known as the Statement of Financial Position). I have several videos on each of these topics: edspira.com/topic/multi-step-is-short edspira.com/topic/example-balance-sheet Note: accumulated depreciation is a contra-asset, so it would either be listed as a negative number in the asset section of the Balance Sheet below PP&E, or the company may state "PP&E, net" which means that accumulated depreciation has already been subtracted from the PP&E. Thanks for watching!

[@zamf]

Hi, good explanation. I have one question: what happens to the depreciation accounting after the fifth year? Do you suddenly stop depreciating it? That is of course if the truck is still in good condition and it surpassed its expected lifetime.

[@Edspira]

You are correct. Once you have depreciated the asset over it's entire useful life, then you stop depreciating the asset. If you turn around and sell the truck, you would record a gain on the sale of the truck.

[@zamf]

@@Edspira Thank you for the answer. This really cleared the things for me.

[@lawrencejere1478]

Well explained

[@Edspira]

Thanks!

[@gimmecheesecake]

How do you know when you have a profit or loss in each period that's still bugging me?

[@owlwinter9576]

Revenue - expense

[@user-zw3rg2go4o]

Lucky Charms as owl winter said (Revenue-Expense) if it’s: •Positive (+) then net income •Negative(-) then net loss

[@boat-dog8622]

Love this work, video, and it's ev-ev-e-ev-everything seems great f-f-f-f-fff-for this video. nice.

[@boat-dog8622]

Ohh so smoot!!!

[@katemoloney2522]

Can I just ask, in the first example with no depreciation and the expense of truck taken out in year one, should year 2 show 0 profit as you break even? as when I look at both examples it appears that example 1 makes 20k and example 2 makes 15k. Also l=usually land isnt depreciated but if you owned land on the side of a subsiding cliff would you depreciate that?.

[@Edspira]

Revenue minus expenses = Profit (Loss) Thus, for the first example the 2nd year's profit is $5 because there was $5 of revenue and $0 of expenses. Remember, revenue and expense accounts are temporary accounts that close-out to retained earnings at the end of the year, so we aren't summing the profit (loss) column. Also over 5 years, both retained earning accounts would be $15 in this example. For more information on temporary accounts you can view the following video: edspira.com/topic/nominal-vs-real-accounts As for the second part of the question, land is never depreciated. If you lost your land due to a natural disaster, it would be "disposed" in the year of the avalanche/mudslide.

[@sarkii89]

Hey great video, Please answer my doubt. Question:In income statement many times the maintenance charges are deducted.(ie maintenance of machinery,maintenance of building).Now often it varies from the depreciation charges for the year.My question is since depreciation is a not physically paid out,it is an amount that is held by the company,even though it is not shown in the balance sheet. PART 1:What does the company do with this depreciation money,which is not reflected on the balance sheet?(it is not reflected in the netblock)Please answer PART2:If let us say that the depreciation charged for the year is 15 crore rupees(2.3 million dollars) and already the maintenance charges are deducted in the income statement,what is the purpose of depreciation?Is it only to claim tax benefits?Or is their any other reason. PART3:If the company is already maintaining the plant,then technically the net income of the company is more by 15 crore(the depreciation charge).Then are companies more profitable than they look? SPECIFICALLY I WANT AN OPINION REGARDING EVER READY INDUSTRIES annual report 2017 page 144.Clearly the other expenses include repairs and maintainence of plant ,machinery and software.Then what is the point of a seperate depreciation charge of 15 crore rupees on the income statement? www.bseindia.com/bseplus/AnnualReport/531508/5315080317.pdf

[@sarkii89]

I am studying investing on my own,thank you for your help.

[@sumankhadka9781]

natural calamities can be the issue that might depreciate the land. Also no one will buy that land from you. But in some country some fools buy a land in dry season and cries in Rainy season.

[@Hemalatha-tl6hn]

Sum wise sollungha pls

[@davidperrone2992]

Numbers are throwing me off a bit. The first example assumes that we’ve made $20,000 after five years. But the second example assumes we’ve made $15,000 after five years. I know I must be reading it wrong but I can figure out why. Is it because in the first example years one AND two are technically considered not profitable? That would make it so both examples equal $15,000 in profit after the five years.

[@willk5402]

No, both examples show $15000 profit after 5 years.The first example has a loss of $5000 in the first year, that's why he put brackets around it

[@interstellartripper8620]

Why is the profit of the 2nd year not 0? You had an expense of 10 in the first year you earned 5 in the same year with which you ended with a loss of 5. Now the next year you earn 5 again and your loss of 5 from last year is neglected with the 2nd year profit of 5 . Isn't this the way it should have gone ? Sorry for bad grammer

[@ttig4044]

that's because the truck is a once off payment, you have other assets in your business making up for the expense so the next year the 5k lost would have been reversed to some sort of profit. This is just an example in where the business is profitable.

[@ttig4044]

now if you had to make recurring payments then the expense would be stated and therefore the Profit/loss may be different, for example a truck on finance, but then you would probably look at the Profit/loss in monthly terms, not yearly. Unless of course, you have to make yearly payments. This is rare in most businesses.

[@Aprilmoe123]

I do not understand why 2 year , makes the profit 5k, the profit needs to be zero