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What is the difference between depreciation and amortization

What is the difference between depreciation and amortization

The concepts of depreciation and amortization have much in common and are associated with the depreciation of production assets.

Meanwhile, they are not identical and should be distinguished from each other.

The concept of depreciation and amortization

A significant share of the costs associated withthe cost of capital resources (equipment, facilities). Their peculiarity is that they are not consumed in one production cycle as raw materials and serve for years. But it is subject to wear.
Depreciation - is the process of losing the object of theircharacteristics, resulting in a reduction in its cost and depreciation. This can include such basic means of the enterprise, as equipment, buildings, transport and so on.
In economic terms, distinguish the physical andobsolescence. Physical deterioration is associated with deterioration of the property with the loss of its properties as a result of aging by using this property. It is calculated as the time of the asset related to the normative service life. Obsolescence is a result of a partial loss of its asset value as a result of new, more advanced technologies or under the influence of other factors.
Depreciation is a processpartial transfer of fixed assets as they wear on production costs. It is carried out using the depreciation rules.
There is the so-called main circuitfunds. It includes three stages: depreciation, amortization and compensation. Depreciation and amortization are carried out in the fixed assets in production, compensation - in their creation and restoration.

Comparison of depreciation and amortization

the following differences can be identified on the basis of a comparison of amortization and depreciation concepts:
- At the time of occurrence - depreciated as a result of depreciation of fixed assets, ie it is sledstviem-
- Amortization - a cash equivalent of depreciation of fixed assets, while depreciation has no money vyrazheniya-
- Depreciation is not necessarily dependent on the level ofwear - on the project can be fully amortized costs, while it has not yet been subjected to a complete physical wear and must be future ispolzovaniyu- happen and reverse situation - when the equipment fails before full cancellation of his stoimosti-
- The company can define rules amortizatsii-
- An accounting term wear is not only used - amortizatsiya- wear - a concept from the field of financial analyzer
- The term amortization is fixed by law, while the legal definition otsutstvuet- wear
- Depreciation - decrease in the value of fixed assets andrate of obsolescence of equipment and depreciation - the transfer of the cost of production, which allows you to restore the main fund.

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