This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Depreciation is a non-cash expense (reported on the Income Statement) that expresses the reduction in economic value of a Tangible Asset over time. Depreciation reflects the wear and tear of an asset over time.
Some companies record Depreciation as part of COS/COGS (i.e. it is part of the Direct Cost); other companies record it as a line item in Operating Expenses.
For companies using EBITDA, Depreciation is recorded below the EBITDA line of the Income Statement.
NOTE: Intangible Assets do not ‘wear out’ so they do not Depreciate. Instead, Amortization is to spread the cost of the asset over the expected useful life, it is reported on the Income Statement similar to Depreciation. (Impairment is a method of further reducing the value of an Intangible Asset.)
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.