Definition of Depreciation Expense

A non-cash expense that results in a reduction in taxable income.

Applying "Depreciation Expense" to Securities Exams:

Assets are depreciated during their useful life. When a business purchases a machine for $100,000 for cash the business will reduce the amount of cash it has on its balance sheet by $100,000 and increase the amount of equipment on its balance sheet by $100,000. If the machine has a usefull life of 10 years it will take a depreciation expense of $10,000 per year against its income for 10 years.

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