Depreciation Expense

Category

Income Statement

Units

Currency

US-GAAP elements

DepreciationDepreciationNonproduction

Reference

ASC 360, Property, Plant, and Equipment

Source

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

Depreciation expense is the portion of the cost of a company's physical long-lived assets, such as buildings, machinery, vehicles, and computer equipment, that it charges against earnings in a period to reflect using those assets up. It spreads an asset's cost, less any expected salvage value, over the years the asset is expected to be useful.

Depreciation is a non-cash charge. The cash left the business when the asset was bought and was recorded then as a capital expenditure. Depreciation simply moves that cost from the balance sheet to the income statement over time.

Depreciation of property, plant, and equipment is governed by ASC 360. Companies tag the total in XBRL as Depreciation, which covers depreciation on both production and non-production assets. DepreciationNonproduction captures only the part tied to assets outside the production process, such as office buildings and corporate IT. Land is not depreciated, and amortization of intangible assets and depletion of natural resources are separate charges, not part of this line.

Most companies do not show depreciation as its own income statement line. Depreciation on factory equipment is absorbed into inventory and reaches the income statement through cost of goods sold, while depreciation on offices and sales equipment usually sits within selling, general and administrative expense. The total usually has to be found in the property and equipment footnote or the cash flow statement, where it is added back to net income, often combined with amortization.

The method matters. Straight-line depreciation charges the same amount each year, while accelerated methods such as declining balance charge more in the early years. Useful-life estimates are management judgments, so two companies holding similar assets can report quite different depreciation. Analysts compare depreciation with capital expenditures to judge whether a company is maintaining its asset base, and they add it back to operating income when calculating EBITDA.