Why Your E-Commerce business needs Depreciation.com

The purpose of Depreciation.com is actually to charge to expense the portion of the asset which relates to revenue being created by that asset (wikipedia’s definition of depreciation). Essentially this is termed as the matching principle in which the revenues and the expenses appear in an income statement to the similar reporting period that gives you the best sight on how well the company have performed in the given accounting time. Indeed you can try this depreciation schedule.

The worry with the Depreciation.com is that actually there is the tenuous connection which is in between a generation of the revenue and the specific asset. Under tenets of the constraint analysis, then all the assets of the company need to be treated like the single system which generates the profit; so, there is essentially no way of linking the specific fixed assets to the specific revenue.

To go around to this linkage challenge, we assume the steady rate of the depreciation over useful life of every asset, so as we can approximate the linkage between a recognition of the revenues and the expenses in a period of time. This approximation actually threatens the credulity even much more when the company uses the accelerated depreciation because the key reason to use it is to defer the taxes. Also, the matching principle does not work in those cases where depreciation expense is recognized but there are no sales, as occurs in seasonal sales situations. The reason onto why you need Depreciation.com is as follows:

a little red car depreciating on a pile of money

a) To Calculate the True Profits:

Depreciation is the expense and this becomes the important element of a cost of the production. Though it’s not that visible like the other expenses and hardly paid to an outside party though it is very desirable to control depreciation on the fixed assets because these are being used for the earning purposes; therefore their depreciation need to be deducted out from the income being earned from their own use so as to calculate the true profit net or the loss.

depreciation graph with men and clouds

b) To show the true Financial Positions:
The financial position actually can be well studied from a balance sheet and also for a preparation of the balance sheet of the fixed assets which are needed to be shown in their true values. If the assets are well shown in a balance sheet by not any charge being made for the use or the depreciation, then the value need to have been exaggerated in a balance sheet and cannot reflect true financial positions of the business. Therefore, for a purpose for reflecting the true financial position, it’s necessary that Depreciation.com need to be deducted from assets and then be reduced values which may be well shown in a balance sheet.

tax depreciation depiction
c) To make the Provision for the replacement of the assets:
If the depreciation is not well provided, the earnings of a concern can be exaggerated and may be dispersed to shareholders as the dividend. At the end of a working life of an asset, there can be no funds or provision at a disposal of a concern and those to borrow for the purchase of the new assets. The provision for the depreciation is a charge to profits and loss account though depreciation is not paid. The amount of Depreciation.com accumulated in the working life of an asset offers the added working capital in addition of providing sum in the end of a working life of an asset for the replacement.

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