Meaning and calculation
Read D&A alongside capital spending to distinguish accounting cost allocation from cash investment.
Annual straight-line depreciation = (asset cost − residual value) ÷ useful life
Source references: SEC: Beginners’ Guide to Financial Statements
A hypothetical worked example
Hypothetical: An equipment asset purchased for USD 6 million with a six-year useful life and zero residual value depreciates at USD 1 million per year using straight-line accounting.
What can make this comparison misleading?
Depreciation allocates the cost of tangible assets; amortization commonly allocates finite-lived intangible asset costs. Neither allocation means that amount of cash was paid in the same period.
An indirect cash-flow statement adds back noncash D&A when reconciling net income to operating cash flow. That add-back does not erase the earlier cash purchase or future replacement spending. D&A is also different from MD&A, which means management’s discussion and analysis.
What to record beside the number
- The filing URL, document section and issuer identity.
- The reporting period, currency, units and whether the figure is reported or calculated.
- The exact formula and any missing inputs or differences in definitions.
Sources & corrections
Prepared with AI assistance and automated source and calculation checks. No independent human analyst review is claimed. Hypothetical examples and historical data are identified in the text.
Use the linked primary sources to check definitions and company disclosures. Filings and service details can change; verify the relevant period before relying on a figure.
Found an error? Send a correction with the page, the claim and a supporting source. These guides provide general education; they do not assess your financial circumstances or recommend a trade. Read our research disclosures.