What Is Depr♐eciation, Depletion, and Amortization (DꩲD&A)?

Depreciation, depletion, and amortization (DD&A) is an accounting technique that enables companies to gradually expense various dif﷽ferent resources of economic value over time in order to ma🎶tch costs to revenues.

澳洲幸运5官方开奖结果体彩网:Depreciation spreads out the cost of a 澳洲幸运5官方开奖结果体彩网:tangible asset over its useful life, 澳洲幸运5官方开奖结果体彩网:depletion allocates the cost of extracting natural resources, such as timber, minerals, and oil from the earth, and 澳洲幸运5官方开奖结果体彩网:amortization is the deduction of intangible assets over a specified time p༺eriod; 💃typically the life of an asset.

澳洲幸运5官方开奖结果体彩网:Depreciation and amortization are common to almost every industry, while depletion is usually used only by energy and natural-resource firms. The use of all three, therefore, is often associated with the acquisition, exploration, and development of new oil and natural gas reseꩲrves.

Understanding Depreciation, Depletion, and Amortization (D🌱D&A)

澳洲幸运5官方开奖结果体彩网:Accrual accounting permits companies to recognize capital expenses in periods that reflect the use of the related 澳洲幸运5官方开奖结果体彩网:capital asset. In🍸 o🐼ther words, it lets firms match expenses to the revenues they helped produce.

For exam𝕴ple, if a large piece of machinery or property requires a large cash outlay, it can be expensed over its usable life, rather than in the individual period during which the cash outlay occurred. This accounting technique is designed to provide a more accurate depiction of the profitability of the business.

DD&A is a common 澳洲幸运5官方开奖结果体彩网:operating expense item for energy companies. Analysts and investors in the energy sector should be aware of this expense and how it relates to 澳洲幸运5官方开奖结果体彩网:cash flow and capital expenditure.

Depreciation

Depreciation applies to expenses incurred for the purchase of assets with 澳洲幸运5官方开奖结果体彩网:useful lives greater than one year. A percentage of the purchase price is deducted over the course of the asset's us🦹eful l🍸ife. 

Depletion

Depletion also lowers the cost value of an asset incrementally through schedul𓆏ed charges to income. Where it differs is that it refers to the gradual exhaustion of natural resource reserves, as opposed to the wearing out of depreciable assets or the aging life of intangibles.

Depletion expense is commonly used by miners, loggers, oil and gas drillers, and other companies engaged in natural resource extraction. Enterprises with an economic interest in mineral property or standing timber may recognize depletion expenses against those assets as they ar🌸e used. Depletion can be cal༒culated on a cost or percentage basis, and businesses generally must use whichever provides the larger deduction for tax purposes.

Amortization

Amortization is very similar to depreciation, in theory, but applies to 澳洲幸运5官方开奖结果体彩网:intangible assets such as patents, trademarks, and licenses, rather than physical property and equipment. 澳洲幸运5官方开奖结果体彩网:Capital leases are also amortized.

Recording Depreciation, Depletion, and Amor꧒tization (DD&A)

If a company uses all three of the above expensing methods, they will be recorded in its 澳洲幸运5官方开奖结果体彩网:financial statement as depreciation, depletion, and amortization (DD&A). A single line providing the dollar amount of charges for the 澳洲幸运5官方开奖结果体彩网:accounting period appears on the 澳洲幸运5官方开奖结果体彩网:income statement.

Explanations may also be supplied in the 澳洲幸运5官方开奖结果体彩网:footnotes, particularly if there is a large swing in the depreciation, depletion, and amortization 💃(DD&A) charge from one period to the next.

An entry is made on the balance sheet, too. The dollar amount represents the cumulative total amount of depreciation, depletion, and amortization (DD&A) from the time the assets were acquired. Assets deteriorate in value over timeও and this is reflected in the balance sheet. 

Real World Example

Chevron Corp. (CVX) reported $19.4 billion in 🥃DD&A expense in 2018, moꦉre or less in line with the $19.3 billion it recorded in the prior year. In its footnotes, the energy giant revealed that the slight DD&A expense increase was due to higher production levels for certain oil and gas producing fields.