Tag: Capital Expenditures
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Bookkeeping – Introduction to Depreciation (Lesson 50)
Depreciation is the process of allocating the initial capital outlay for fixed asset purchases over time to the income statement. The basic principle with depreciation is that any fixed asset has a predetermined lifetime based on time, usage or fair market value.
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Replacement Reserves- Understanding the Fundamentals
Long and short term housing rental businesses use a financial operations tool to maintain, repair and upgrade the physical facilities. This tool is known as replacement reserves in the real estate industry. In almost all cases it is a contractual agreement requirement between the mortgage lender and the borrower.
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Capital Expenditures – IRS Definition
The Internal Revenue Service uses a complex definition to identify capital expenditures (assets). A capital expenditure is not deductible as an expense in the tax year purchased; the taxpayer or entity must use depreciation, amortization or depletion to obtain deductible value on the entity’s return.
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Internal Revenue Service (IRS) Definition of an Expense
The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’. Ordinary expenses are those costs typically incurred in your industry. A restaurant would not ordinarily purchase vaccines. And a medical practice would not purchase 50 heads of lettuce.