The concept and practice of depreciation plays an integral part in a company's cash flow situation and funding. The two main reasons this occurs are that firstly depreciation is a for of self finance, and secondly because a company does not have to pay taxes on depreciation, hence excluding taxation from a cash amount which enlarges the cash flow of a company.

As a term, depreciation is defined as a loss in value, a diminishment in market price, always taking the time factor into account, because the view point of depreciation is always a rate of change in value in an asset (fixed or current) compared to the present value of that asset.

If a company purchases or rents machinery, or any sort of equipment used for production purposes, it has to take into account the purchased or rented good's production life span, meaning that everything has a certain period of time in which it contributes to production before it is rendered useless. I use the term useless in the sense that what is produced doe

Accounting Basis Cash Basis Depreciation

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Approximate Pages = 3 (250 words per page double spaced)