Concepts guide - Depreciation

[Jon Lapham]

David Harrison wrote:
> Well, it been more than a few days, but here are the changes I propose
> for the concept guide.

David-

Thanks for the text updates, let's discuss a bit.  let's begin with the 
opening paragraph of the Basic Concepts section, which should introduce 
and define depreciation.

Original text:
This chapter will present some of the techniques used to keep track of 
the changing values of assets, IE: depreciation, unrealized gains, 
capital gains.

(this is obviously bad, since this chapter does *not* discuss capital 
gains...)

Your text:
One of the basic concepts in accounting is the matching of revenues and 
expenses.  When you purchase a capital asset (e.g. car, computer, 
equipment), you will use this asset to earn income for a number of 
years.  Instead of expensing the cost of the asset in the year it was 
purchased, you expense a portion of the cost each year in a manner that 
matches flow of revenue.   This process is called depreciation.

I like your text, except that it seems to be very tax oriented.  If I 
(as an individual) buy a new car, I may want to track the car's 
depreciation, so that I have an estimate of my personal net worth for 
any given year.  No tax implications, just simple book depreciation.

I'm thinking we should introduce the concepts of book versus tax 
depreciation.  Agree?

I found this:
http://coen.boisestate.edu/mkhanal/deprecia.htm

Another idea I have is that maybe we should have a list of terms and 
definitions?  Here are a few, any others?

Book depreciation:
Tax depreciation:
Cost basis: cost of the capital item plus incidental costs
Salvage value:

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  Jon Lapham  <lapham at jandr.org>                Rio de Janeiro, Brasil
  Personal: http://www.jandr.org/
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