Depreciation & Amortization (D&A)

Category

Cash Flow

Units

Currency

US-GAAP elements

DepreciationDepletionAndAmortizationDepreciationAmortizationAndAccretionNetDepreciationAmortizationOfIntangibleAssets

Reference

ASC 360 (property, plant and equipment); ASC 350 (intangible assets); ASC 230 (operating activities)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Depreciation and amortization (D&A) is the expense a company records during a period to spread the cost of its long-lived assets over the years they are used, depreciation for physical assets such as buildings and equipment, and amortization for intangible assets with finite lives such as customer relationships, patents, and capitalized software. On the cash flow statement it is added back to net income, because the expense reduced earnings but no cash was paid in the period.

The cash was spent when the asset was bought, and that outflow appears in investing activities as capital expenditures or acquisitions.

Depreciation of property, plant, and equipment is governed by ASC 360, and amortization of intangible assets by ASC 350. Goodwill and indefinite-lived intangibles are not amortized for public companies; they are tested for impairment instead. In XBRL the combined add-back is usually tagged DepreciationDepletionAndAmortization, which also includes depletion of natural resources for energy and mining companies. DepreciationAmortizationAndAccretionNet adds accretion, for example on asset retirement obligations. Companies that report the pieces separately use Depreciation and AmortizationOfIntangibleAssets.

The cash flow figure is often larger than any D&A line on the income statement. Many companies spread depreciation across cost of revenue, operating expenses, and other lines instead of showing it on its own, so the cash flow statement is frequently the only place the full amount appears. Some filers also include amortization of debt issuance costs or of right-of-use assets in this line, while others show those separately.

Analysts use D&A in several ways. It is the bridge from EBIT to EBITDA, calculated as operating income plus D&A. Comparing D&A with capital expenditures shows whether a company is reinvesting enough to maintain its asset base. And a large amortization charge from past acquisitions can make GAAP earnings look weaker than cash flow, which is why many companies emphasize adjusted figures that exclude it.