Keeping track of depreciation and amortization is crucial for corporations to maintain accurate financial statements and make informed business decisions. Depreciation and amortization are two important accounting concepts that allow companies to spread the cost of assets and intangible assets over a specified period of time. In this article, we will delve into the importance of keeping track of depreciation and amortization for corporations, and the impact they have on financial management.

Depreciation is the process of allocating the cost of a tangible asset, such as machinery, equipment, or buildings, over its useful life. This allows corporations to expense the cost of the asset gradually, rather than all at once, and more accurately reflect the value of the asset over time. Depreciation helps corporations maintain accurate financial statements and is used to determine the value of an asset for tax purposes.

Amortization is similar to depreciation but is used to allocate the cost of intangible assets, such as patents, trademarks, and copyrights. Like depreciation, amortization helps to spread the cost of intangible assets over a specified period of time, allowing corporations to expense the cost gradually.

Accurate record keeping of depreciation and amortization is important for corporations because it directly impacts the financial statements. When depreciation and amortization are recorded accurately, the balance sheet accurately reflects the value of the assets and liabilities, providing a clearer picture of the financial health of the corporation. Furthermore, accurately recorded depreciation and amortization can also impact the corporation’s taxable income, as the amount of depreciation and amortization can reduce the taxable income.

In addition, keeping track of depreciation and amortization helps corporations make informed business decisions. For example, when considering purchasing new equipment, corporations can use the expected depreciation and amortization to determine the impact on their financial statements and taxable income. This information can then be used to determine if the investment is financially viable.

In conclusion, keeping track of depreciation and amortization is crucial for corporations to maintain accurate financial statements, make informed business decisions, and determine their taxable income. Accurate record keeping and proper management of depreciation and amortization can greatly impact the financial success of a corporation.