Spreading the cost of equipment over the years it is used
Depreciation spreads the purchase price of long-lived equipment across the years it will be used. Expensing it all in the year of purchase would swing profit wildly, so the cost is allocated over time. The cash left when the asset was bought, so later years carry the expense without any payment. This is a main reason cash flow runs above reported profit.
A $1 million machine depreciated over 10 years shows $100,000 of expense each year.
For learning, not investment advice. Decisions are your own.
StockFit · TrueNorthLabs Inc.