What is Depreciation?
Spreading the cost of a long-lived physical asset across the years it actually helps you earn.
Depreciation: definition
When you buy equipment, vehicles, or machinery, you do not expense the whole cost at once - the asset provides value for years. Depreciation spreads that cost across its useful life, keeping each period’s expense proportionate to the benefit received. It is a non-cash expense: the cash left when you bought the asset, but the expense is recognized over time.
- Straight-line: equal expense each period over the useful life
- Accelerated (e.g., double-declining): more expense early on
- Applies to tangible fixed assets; intangibles use amortization
- Reduces the asset’s book value via accumulated depreciation
How Fintra handles it
Fintra maintains a fixed-asset register and posts depreciation automatically on the schedule you choose (straight-line or accelerated), each period reducing book value and recording the expense. The accumulated depreciation and net book value are always current, and the entries are part of the automated close rather than a manual spreadsheet.
Worked example
Frequently asked questions
What is the difference between depreciation and amortization?
Both spread cost over time, but depreciation applies to tangible fixed assets (equipment, vehicles) and amortization applies to intangible assets (software, patents) and certain loans. The concept is the same; the asset type differs.
What are the main depreciation methods?
Straight-line spreads cost evenly across the useful life. Accelerated methods (like double-declining balance) front-load expense. Units-of-production ties it to usage. The method affects the expense pattern, not the total. Fintra supports the common methods.
Is depreciation a cash expense?
No. Depreciation is a non-cash expense - the cash outflow happened when you bought the asset. That is why it is added back in EBITDA and cash-flow statements. It still reduces reported profit and the asset’s book value.
Does Fintra automate depreciation?
Yes. Fintra keeps a fixed-asset register, posts depreciation on your chosen schedule automatically as part of the close, and keeps accumulated depreciation and net book value current without a separate spreadsheet.
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