Explain the concepts of depreciation, amortization, and depletion. Why is it necessary to move these costs...

Explain the concepts of depreciation, amortization, and depletion. Why is it necessary to move these costs from the balance sheet to the income statement?

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Expert Solution

Depreciation, Depletion and Amortization all these are Accounting terms used to describe the method to allocate the value of an asset over its useful period of life.

Depreciation is a term that is used for the tangibles assets to allocate their expenses over their useful period of life.

Amortization is similar to depreciation but is used in the context of intangibles assets like Goodwill, Patents , Copyrights etc.

Depletion is used for the various assets which are based on various extractions like mineral extractions, coal extractions and timbers etc.

All of these are different in their name but the main purpose is to allocation of cost of their acquisition over the period of their usage.

As the accounting is based on double Bookkeeping concept it is necessary for every debit to be an equal credit.

As year by year the cost of asset is decreasing due to their usage then as per their usage it is necessary to expense out the cost with the revenue in their period of occurrence so it becomes necessary to move the depre, amortization and Depletion from balance sheet to the income statement.

ekkarill92 answered 1 year ago

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