Summary
Depreciation addresses how investments in capital assets are charged off against income over several years. This is an important part of calculating after-tax cash flows, which is critical to accurately addressing income taxes. This chapter covered the following major points:
Actual depreciation refers to how an asset will lose value over time due to effects such as wear and tear.
Depreciation accounting refers to how the organization accounts for that loss in value.
Actual depreciation is rarely the same as depreciation accounting. Actual depreciation is virtually impossible to determine without selling the asset—it's really worth only what someone is willing to pay for it.
Through depreciation accounting, tax authorities are trying to ...
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