The Bigger Picture In Selling Your Business

What Does Depreciation Mean?

In accounting, depreciation is a scheduled expense allocated to the cost of a tangible asset over its lifespan of usefulness. The following example explains the understanding of depreciation: if a company spent £50,000 on a machine expected to have 10 years of usefulness, it depreciates this expense by deducting £5,000 each year from its taxable income over the course of the 10 years.

Being a non-cash expense, depreciation increases free cash flow while decreasing reported earnings.

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