What is Depreciation?
Depreciation is the way the cost of an asset such as a machine or vehicle is spread over the years it is used, as it loses value.
Updated
Meaning
English
Depreciation is the way the cost of an asset such as a machine or vehicle is spread over the years it is used, as it loses value.
Roman Urdu
Depreciation ka matlab hai kisi cheez, jaise machine ya gari, ki Cost ko uske istemal ke saalon me taqseem karna jaise uski qeemat ghatti hai.
Also called asset wear, value loss.
Example
A bakery buys an oven for 600,000 rupees and expects it to last six years. Spread evenly, the yearly depreciation is 100,000 rupees.
Why it matters
Depreciation is a cost even though no cash leaves your pocket in that year. Counting it makes profit more honest: an oven that wears out is part of the cost of selling bread. It applies to equipment, furniture and vehicles, not to stock you sell. Tax rules on depreciation differ from the simple method here, so use an accountant for filing.
In Nafaa
Nafaa tracks expenses and profit; depreciation is an accounting entry that your accountant can add from the expense and equipment records. See business reports.
Related terms
- Operating Expenses
Operating expenses are the regular costs of running a business that are not part of the goods sold, such as rent, salaries, electricity and internet.
- Net Profit
Net profit is what is left from sales after the cost of goods and all business expenses have been taken off.
- Balance Sheet
A balance sheet is a statement showing, on one date, what a business owns (assets), what it owes (liabilities) and what is left for the owner (equity).