Sabanes Oxley Act of 2002
Depreciation and depletion are two models of computing financial reports. These techniques are used as adjustments when preparing statements of cash flow within the direct or indirect method. This paper will identify and examine the methods of depreciation and depletion, describe the difference between the methods, and compare and contrast depreciation and depletion as well using scholarly references to support the points.
Net income is reduced through depreciation and is an expense of the company. It does not reduce cash of the company. This adjustment does not involve the calculations of current cash flow. Calculations should be put back on net income in order to produce the outcomes of cash that has been provided by the operations of the company. Depreciation occurs when economic and physical factors cause a decline with potential services. It provides replacement funds but does not provide funds. Depreciation is a non-cash expense given by the IRS that is very important to a company’s cash flow. Book depreciation is based upon the usage of assets. Tax depreciation is subtracted from the company 's income when completing yearly taxes using MACRS. Kieso, Kimmel, and Weygandt (2011) explain that depreciation as “the process of allocating the cost of an asset to expense over its useful life” (p. 197). It is a way to basically created funding for the company and also means the value of an asset has been deducted.
It causes a loss in value and can decrease the marketing price of valued good. It can also create a decrease in taxes and increase cash flow. One thing that cannot be depreciated is land. Wiley (2007) states that retaining funds, depreciation reduces “taxable income and retained earnings available for dividends” (p. 5). Capital assets have a chance to depreciate. Fixed assets include shipping, installation, preparation costs, repairs, additions, and improvements. It occurs and is calculated in debit and credit.
There are many different
Net income is reduced through depreciation and is an expense of the company. It does not reduce cash of the company. This adjustment does not involve the calculations of current cash flow. Calculations should be put back on net income in order to produce the outcomes of cash that has been provided by the operations of the company. Depreciation occurs when economic and physical factors cause a decline with potential services. It provides replacement funds but does not provide funds. Depreciation is a non-cash expense given by the IRS that is very important to a company’s cash flow. Book depreciation is based upon the usage of assets. Tax depreciation is subtracted from the company 's income when completing yearly taxes using MACRS. Kieso, Kimmel, and Weygandt (2011) explain that depreciation as “the process of allocating the cost of an asset to expense over its useful life” (p. 197). It is a way to basically created funding for the company and also means the value of an asset has been deducted.
It causes a loss in value and can decrease the marketing price of valued good. It can also create a decrease in taxes and increase cash flow. One thing that cannot be depreciated is land. Wiley (2007) states that retaining funds, depreciation reduces “taxable income and retained earnings available for dividends” (p. 5). Capital assets have a chance to depreciate. Fixed assets include shipping, installation, preparation costs, repairs, additions, and improvements. It occurs and is calculated in debit and credit.
There are many different
References: IRS. (2012). Depletion . Retrieved November 19, 2012, from IRS: http://www.irs.gov/publications/p535/ch09.html Kieso, D. E., Kimmel, P. D., & Weygandt, J. J. (2000, 2012). Financial Accounting: Tools for Business Decision Making (6th ed.). John Wiley & Sons, Inc. Retrieved October 2012, from http://bcs.wiley.com/he-bcs/Books?action=resource&bcsId=6075&itemId=047053477X&resourceId=24503 Microsoft. (2012). Understand Depreciation. Retrieved November 20, 2012, from Microsoft: http://office.microsoft.com/en-us/excel-help/understand-depreciation-HA001226442.aspx Noland, T. R. (2011). The sum-of-years’ digits depreciation method: use by SEC filers. Journal of Finance and Accountancy, 1-12. Retrieved November 20, 2012, from http://www.aabri.com/manuscripts/10577.pdf Ramos, J. L. (2010, June 11). Accounting terms: Depreciation, depletion, amortization. Retrieved November 22, 2012, from Helium, Inc. : http://www.helium.com/items/1859142-accounting-terms-depreciation-depletion-amortization Wiley. (2007, September 13). Depreciation and Depletion. Retrieved November 21, 2012, from Wiley: http://www.wiley.com/college/kieso/outline/out11.pdf