Today we are going to talk about the accounting term and usage of depreciation. Depreciation is certainly a word you have heard or seen used before in your financials, but do you know what it means. What is depreciation and why is it important?
Depreciation is applied to assets to show the value loss over an extended period of time. (Do you know what an asset is? Check out our blog post on assets by clicking here. Insert link to asset blog link). With a large asset like a vehicle or specialized machinery it is important to ensure you are accounting for it properly in your financials. Depreciation is a way to do that. It can be scheduled out to decrease in value over time. This can be based on the amount of usage or time that is estimated that the asset will be used by the business.
Why would you need to depreciate an asset though? Is it really that important? An asset is typically a major purchase and having it all hit in one year can really skew your financial reporting. By depreciating these assets, you can properly reflect them throughout the lifespan of the asset.
It is important to remember that depreciating properly can only be done if you really understand how it can affect your financials long term. Outsourcing your accounting is a great way to ensure that tasks like depreciation are done properly. This will provide you with peace of mind that your financial reports are a true accurate reflection of your business. Let Devine help you with your depreciation. Call us at 281-545-4000.