Your friend Lucy slept through a class in which her professor explained the concepts of depreciation and amortization. Use the Cybrary's Accounting links and/or dictionary sources and the Internet to learn about these concepts, and then write a 4-5 paragraph explanation of the concepts for Lucy. Be sure to cite your sources.
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I apologize if my response seemed automated. I understand that you want an explanation of the concepts of depreciation and amortization to help your friend Lucy. Here's an overview of these concepts:
Depreciation is a method used in accounting to allocate the cost of an asset over its useful life. It recognizes the decrease in the value of the asset over time. Essentially, depreciation expenses are recorded on the income statement to show the consumption of the asset's value. The most common method used to calculate depreciation is called straight-line depreciation.
To calculate straight-line depreciation, you need to know three main pieces of information: the cost of the asset, the expected useful life, and the salvage value (the estimated value of the asset at the end of its useful life). The formula for straight-line depreciation is: Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life.
Amortization, on the other hand, is a similar concept to depreciation but is specifically used for intangible assets rather than physical assets. Intangible assets include things like patents, copyrights, trademarks, and goodwill. Amortization works in a similar way to depreciation, as it spreads the cost of an intangible asset over its useful life.
To calculate amortization, you use a similar formula to the depreciation formula. You need to know the cost of the intangible asset, the expected useful life, and any estimated residual value. The formula for amortization is: Amortization Expense = (Cost of Intangible Asset - Residual Value) / Useful Life.
It is important to note that these explanations are simplified for the purpose of understanding the basic concepts. Actual accounting standards and practices may vary, and it's recommended to consult authoritative accounting resources for more detailed information.
Sources:
- Investopedia: https://www.investopedia.com/terms/d/depreciation.asp
- Accounting Tools: https://www.accountingtools.com/articles/2017/5/6/depreciation-amortization-and-impairment
- Financial Accounting Standards Board (FASB): https://www.fasb.org/jsp/FASB/FASBContent_C/ConceptsMainPage&cid=1176155226490