Depreciation

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Depreciation allows accountants to spread the cost of equipment and other assets over more than one accounting period. Most capital expenditures are depreciated (land is an example of one that isn’t). Accountants attempt to depreciate the item over what they believe will be its useful life…. If we think a truck will last three years, for instance, we can record(“depreciate”) one-third of the cost per year, or one-thirty-sixth per month, using a simple straight-line method of depreciation. That’s a better way of estimating the company’s true costs in any given month or year than if we recorded it all at once. Furthermore, it better matches the cost of the equipment to the revenue that it is used to generate - an important idea that we will explore at length in chapter 3. —p29, Financial intelligence for entrepreneurs