Non-cash bookkeeping entry

Remember, DEPRECIATION is not a cash expense like LABOR AND MATERIAL costs; it is simply a bookkeeping entry on the Balance Sheet and on the Income Statement. The cash expense for fixed assets is incurred at the time of purchase.

On the Balance Sheet, GROSS FIXED ASSETS(capitalized purchases of property, plants, and equipment) are listed at their purchase price. Accumulated DEPRECIATION (sum of all depreciation charges over the life of the assets currently on the company's Balance Sheet) is deducted to arrive at NET FIXED ASSETS

NET FIXED ASSETS can be considered as an estimate of the value of those assets for the remainder of their useful lives. These principles will also be important in the next section as we analyze the Cash Flow Statement.

On the Income Statement, the total DEPRECIATION for the period for all CAPITALIZED ASSETS is deducted from earnings as an OPERATING COST

The continuation/full version of this article read on site - Basics of Corporate Finance