An Introduction to Depreciation

This lesson is an introduction to the basic concept of depreciation. It discusses depreciation as an expense, how to determine the cost, or basis, of an asset, and the balance sheet treatment of depreciable assets. It does not discuss the different methods of depreciation. That is dealt with in another lesson, Methods of Depreciation.

Learning Outcomes

On completion of the lesson, the student will be able to:

1. Distinguish depletion, depreciation, and amortization.
2. List the basic mechanics of depreciation.
3. State the reason for depletion, depreciation, and amortization.
4. Explain how the cost or basis of an asset is determined.
5. Explain how depreciation affects the balance sheet and the income statement.