Depreciation
Depreciation is used in accounting to indicate how much of a fixed asset is consumed over a specific amount of time.
For example, let’s say a website business acquires a server for $500,000 and the server has a life of 5 years. Each of these 5 years, it is assumed that the business consumes $100,000 of the server. As such, the server will be depreciated over 5 years. So there’s a $100,000 expense associated with the server each year. This example assumes straight-line depreciation which is not always the case.
Depreciation differs from amortization in that amortization applies to consuming intangible assets like copyrights while depreciation applies to consuming tangible assets like machinery.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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