What Is Depreciation And Amortization?
One of the fundamental accounting principles is matching revenue with cost in any period. This is relatively simpler while dealing with items in cost of goods sold, such as purchase of raw materials, supplies, and cost incurred in conversion to finished goods for sale etc. But this becomes more complex while dealing with assets that have longer lives. There are two different types of fixed assets that a company invests in, tangibles and intangibles. Tangible fixed assets are assets such as Buildings, Plant and equipment that have nearly definite lives. In most cases the value of the fixed assets also depreciates over time. At the end of its useful life assets may have a salvage value. This is true for plant and machinery but not for buildings. Although the value of the buildings might increase from year to year, GAAP requires that depreciation be calculated and accounted as an expense. A business invests in fixed assets to make and sell products and/or services in its business. So, the
