Explain the concepts of depreciation and amortization with cited sources.© BrainMass Inc. brainmass.com March 4, 2021, 9:31 pm ad1c9bdddf
Depreciation is an expense that spreads the cost of the asset over its useful life. The following example illustrates the matching principle in relation to depreciation.
An asset costs $100,000. It is expected to have a life of four years and have a resale value of $20,000 at the end of that time. The depreciation charge is:
(Asset cost - resale value) / expected life = (100,000 - 20,000) / 4 = $20,000 per year.
The definitions for depreciation and amortization are given.