Join Rudolph Rosenberg for an in-depth discussion in this video Depreciation, part of Financial Literacy: Reading Financial Reports.
- [Voiceover] The purpose of Depreciation,…is to account for fixed assets related expenses,…in a way that is relevant to its contribution…to the business activity,…and not to evaluate the current value of assets.…You, therefore, need to use it as such.…To understand depreciation, we first need…to look into how the acquisition of fixed assets,…is accounted for in the company books.…When an acquisition is made,…for a 1,000,000 dollar piece of equipment for example,…it is treated in two different ways in the company books.…
The two treatments are, from a cash standpoint,…and from a profit standpoint.…The first treatment, is from a cash standpoint.…If the equipment was purchased with cash,…then the total cost of that equipment…is subtracted from the cash of the company right away.…That makes sense.…Since the money was spent, it needs to be taken…out of the bank account, and therefore,…to reduce the cash category of the balance sheet.…But that same expense is not accounted for the same way,…when it comes to calculating the profitability…
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- What is a financial statement?
- Reading the balance sheet
- Understanding depreciation, liabilities, and equity
- Reading the income statement
- Understanding revenue, costs, profitability, and net income
- How cash flow works
- Analyzing financial documents with context<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
Skill Level Appropriate for all
1. Financial Statements
2. The Balance Sheet
3. The Income Statement
4. The Cash Flow Statement
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