Markets · 6 pages · 12 min

How depreciation is not a check someone wrote

Depreciation spreads a past asset cost across later periods and does not send cash out the door this year.

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From the opening

Depreciation assigns a portion of a long-lived asset's capitalized cost to each period of its assigned useful life. The charge reduces reported profit, yet the cash left the firm when the asset was bought, or leaves later when debt used to buy it is repaid. The opening covers cost is spread over life, the check was earlier, and cash flow adds it back.

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Inside

Cost is spread over life
The check was earlier
Cash flow adds it back
It is not a cash fund
Where the idea stops applying
A distinction worth keeping

Sources

Depreciation of long-lived assets
Noncash expense add-back

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How depreciation is not a check someone wrote

From the opening

Inside

Sources

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