I'm a college student and this video was extremely useful in revising for my Financial Accounting module. It was helpful to have a side-by-side comparison of the statement of cash flows and the balance sheet. Will recommend this video to my classmates who are having conceptual misunderstandings of depreciation with regard to cash flow
This is useful. Out of many videos I've searched, this one answer my thought of wondering why do we need depreciation. I understand that it is the reduction of asset's value upon purchase and use, but I was having a wonder of why we need to do it. Turns out this video explained that depreciation is an imperative analysis that we must do in our finance and economy management. From what I've known, assets are broken down into two categories of analysis: 1.Appreciation -"Investing" assets that have increasing value upon purchase over a period of time. 2.Depreciation -"Expensing" on assets that have decreasing value upon purchase over a period of time. *Note:(We are "paying" regardless of the category, but I made it into two category for the purpose of understanding) In this case (which was explained in the video), we do depreciation in-order to ensure that we are able to cope the "expense" with the possible incomes the assets can "assist" to generate. We want to make sure that everything is "paid-off" at the end of the "depreciation time" which is known as "recovery period", and this is highly related with return of investment (ROI) (which is another different topic). Lastly, determining depreciation is possible using the following methods: 1. Straight Line Method 2. Declining Balance and Double Declining Balance Method (DB & DDB) 3. Units of production... etc. I'm a final year Mechanical & Manufacturing Engineering undergrade student taking engineering economy and finance as my minor. Although several parts from the middle towards the end has some difficulty regarding the financial spreadsheet, this is really helpful. Thank you.
I'm happy that my video answered your very valid question. "Appreciating assets" such as Land are not depreciated. So if you look at financials, you will see "Land" and "Buildings" separated out: Land is not depreciated. Buildings are.
i just want to clear you that, in 5 years of studies related to Accounting and finance, My concept about depreciation remains the same, Until i discovered this video and watch it 10 time to learn every single word you said.And perhaps My line manager "Under whom im working" told me one of the reason you got the Job is you have a Clear and Perfect concept about Depreciation....i watched this video couple of Days before my Interview. Thank You for sharing Your Knowledge online And help Thousands of people.. May Lord bless you with More health and success, Amin.
thank you so much, just took over the accounting and book keeping end of my families business with no real background in accounting, videos like these help me expand my understandings of cash flow and how to make our business more profitable. We just investing in proper accounting software after 30 years of being in business and its been a struggle to wrap my head around the principals of accounting. thank you for taking the time to explain these business practices to those of us who need it.
Thank you very much! I have listened to many different lectures but your actually understand how to teach this subject matter. Wish I could have you as an accounting professor.
Thank you for clearly explaining the concept of depreciation with a workable example. It gave a lot of clarity to me having an engineering background. You've earned a sub and a like.
Really good explanations - with multiple scenarios for a full explanations. The pace was very quick, good for me but could see how it maybe too fast for others. Of course they could just rewind.
That's awesome to remind ppl that the profit or loss from the selling of a fixed asset is the difference between the price it sold for and the net book value and NOT price it sold for and the original cost
Thank you for sharing this information. Its been some years since I took accounting and I was working on a project. I truly enjoyed the refresher course.
Thanks for the detailed explanation. However, you could probably spend more time on comparing the balance sheet, p&l and cash-flow as there's a sudden influx of information.
Thank you so much I needed help for school and came across this!! I'm trying to $18250 depreciates 20% in one year I wasn't given much of an example. I'm going to watch the video again I got this !!
You're just AMAZING! Please keep on covering these financial subjects they are of substantial help to me. Could you please post a cover on Profitability Ratios (ROA/ROE...)? Thank you so much.
Hi Benjamin, Thanks for the feedback. There's another video which goes further into the effect of depreciation on the balance sheet, P&L and cash flow. It also deals with the financing decision. Do let me know if this additional video deals with it sufficiently. I've now added the link to this related in the description section.
+elene lortkipanidze No, it goes into overheads. It's only when there is a direct link between the equipment and cost of goods sold eg depreciation of production plant, that you put the depreciation under COGS.
In case of a company that is heavily leveraged (say 80%) where will the repayment of the loan would appear in the P&L statement? Above ebitda or below it?
This video is very effective to improve my knowledge about depreciation thank you very much for video. i have one question if value of car in balance sheet is zero & Car is still using and the end we sold car in cash value.what will effect on all statement could you please explain. tanks again for you video you are very nice.
Thank you very much .. This is the best video explained depreciation .. i subscribed .. Thanks for the effort .. Can you please do interpretations for the 3 financial statements .. Cashflow & income statement & balance sheet .. And how when u put an entry will affect other statement .. & how the are related .. I couldn't find any 🎥 explain it the way you do ..you are awesome .. I will appreciate it ;)
Thanks for the explanation. Totally nailed it. Can I ask about how the assets affect the retained earnings and dividends? (in your scenario) At the end of the first year, you would have 5,000 in the bank: 4,000 net profit and 1,000 made back from the depreciation of the car. Is your retained earnings 5,000 or 4,000? - this affects the amount of dividends you can pay out. Would it be 4,000 or 5,000?
Hi Gideon Chew, The Retained Earnings consists of the amount of Net Profit After Tax that is retained in the business. Net Profit After Tax is AFTER Depreciation expense. The amount of cash you have in the bank has nothing to do with Retained Earnings. Therefore, your dividends would be based on Net Profit After Tax (ie after Depreciation Expense.) Note that if you have negative Retained Earnings due to prior years' losses, you still cannot pay dividends out of the current year's profit. In Australia, businesses must also pass a solvency test before a dividend can be paid.
@@cashflowkungfu yes. I have no accounting background and get lost in the credit/debit double entry stuff and general ledgers. I understand depreciation is a tax write-off, but beyond that, I get lost.
@@alanonsr3942 The videos in my channel do not require any technical accounting knowledge eg credit/debt etc. The focus is on understanding what your financials are telling you about your business without any technical knowledge. Have you watched this video yet? Tell me which part you don't understand after you have watched it.
Hello ma'am this is very useful .. Could you please respond my question . How can a company with a net loss show a positive cash flow? Please respond....
Profit (and loss) are not the same as cash flow. Profiti s an accounting concept. It is NOT cash. There can be a lot of non-cash items included in calculating orofit or loss for a speficied period of time.
+Will Matthews What do you mean by Net Book Value Depreciation? Depreciation is calculated on the Book Value of the asset. The Net Book Value is Book Value LESS Accumulated Depreciation.
Depreciation is an expense item. You depreciate fixed asset item. So, the depreciation expense is a non-cash expense. The cash went out when the fixed asset item (eg car or computer) was paid for.
maaam,,,,,if acc dep > 2014 has (50000) & 2013 has (52000) & if plant asset > 2014 has 270000 & 2013 has 242500 in balnce sheet in income stmnt depriciation exp is 46500 additional info: 1) new plant asset purchase cost 85000 $ for cash 2)old plant asst having original cost 57500 $ and sold for 1500 $ what will b the effect in cashflows operating activities ???? plz maam clarify ,,,,,,i need to understand this
+raihanul haque Depreciation is eliminated when you are working out your cash flow from operating activities. Depreciation is non-cash. The purchase and sale of plant and equipment do not affect operating cash flows (unless you are in the business of buying and selling plant & equipment - in which case your plant and equipment would be inventory items).
There are a whole series of short videos in the Cash Flow Kung Fu channel that should be able to help you. I am setting up a blog on my new website as well (check it out in early 2018). In light of your questions, I will include some blogs that go back to the very basics.
Just want to say, having watched a LOT of UA-cam tutortials on this, you are one of the clearest teachers I've seen on UA-cam. Thanks.
agreed
I'm a college student and this video was extremely useful in revising for my Financial Accounting module. It was helpful to have a side-by-side comparison of the statement of cash flows and the balance sheet. Will recommend this video to my classmates who are having conceptual misunderstandings of depreciation with regard to cash flow
Great video, nice to see you still replying to comments. Thank you for sharing, you have very many great explanations.
Thanks! There will be much more new content coming in 2024. If there's any topic you'd like me to address, just let me know.
This is useful. Out of many videos I've searched, this one answer my thought
of wondering why do we need depreciation. I understand that it is the reduction
of asset's value upon purchase and use, but I was having a wonder of why we need
to do it. Turns out this video explained that depreciation is an imperative analysis
that we must do in our finance and economy management. From what I've known,
assets are broken down into two categories of analysis:
1.Appreciation
-"Investing" assets that have increasing value upon purchase over a period of time.
2.Depreciation
-"Expensing" on assets that have decreasing value upon purchase over a period of time.
*Note:(We are "paying" regardless of the category, but I made it into two category
for the purpose of understanding)
In this case (which was explained in the video), we do depreciation in-order to ensure
that we are able to cope the "expense" with the possible incomes the assets can "assist"
to generate. We want to make sure that everything is "paid-off" at the end of the
"depreciation time" which is known as "recovery period", and this is highly related
with return of investment (ROI) (which is another different topic).
Lastly, determining depreciation is possible using the following methods:
1. Straight Line Method
2. Declining Balance and Double Declining Balance Method (DB & DDB)
3. Units of production...
etc.
I'm a final year Mechanical & Manufacturing Engineering undergrade student taking
engineering economy and finance as my minor. Although several parts from the middle
towards the end has some difficulty regarding the financial spreadsheet,
this is really helpful. Thank you.
I'm happy that my video answered your very valid question. "Appreciating assets" such as Land are not depreciated. So if you look at financials, you will see "Land" and "Buildings" separated out: Land is not depreciated. Buildings are.
This is my second time watching this video. Your explanation is the best on youtube and even better than my finance lecturer!
Thank you. I am so happy that this helps you.
Fantastic Lesson ! Crisp , Concise and Clear ! Thanks.
Thank you! Glad it helped.
Wow! Now I understand the big picture of depreciation in terms of cash flows. This should really help with my CPA exam. Thank you so much!
+Cindy Chen Great!
i just want to clear you that, in 5 years of studies related to Accounting and finance, My concept about depreciation remains the same, Until i discovered this video and watch it 10 time to learn every single word you said.And perhaps My line manager "Under whom im working" told me one of the reason you got the Job is you have a Clear and Perfect concept about Depreciation....i watched this video couple of Days before my Interview.
Thank You for sharing Your Knowledge online And help Thousands of people..
May Lord bless you with More health and success,
Amin.
I am so happy for you, Amin.
Thank you for this video! Now I feel like I understand this concept 😊
I'm glad it was helpful.
thank you so much, just took over the accounting and book keeping end of my families business with no real background in accounting, videos like these help me expand my understandings of cash flow and how to make our business more profitable. We just investing in proper accounting software after 30 years of being in business and its been a struggle to wrap my head around the principals of accounting. thank you for taking the time to explain these business practices to those of us who need it.
I am very happy that you found this useful. Good luck with your new responsibilities.
The images are useful and makes the study interesting.Thank you!
You are an amazing teacher! Thank you!!!
Thank you!
Your method of instruction was perfect in helping understand this subject. Thank you.
Thanks, Debra Taggart. I am glad it was helpful.
This is a very nice tutorial with proper finance charts, I am nowhere related to finance but I was easily able to understand every bit of it.
That's good to hear.
Thank you very much! I have listened to many different lectures but your actually understand how to teach this subject matter. Wish I could have you as an accounting professor.
+HeavyMental1000 Thank you. :)
Thanks for the video. You've explained it better than my grad school professor! Liked and subscribed.
Thank you. Glad you found it useful. Hope the other videos help.
Very clear explanation. Very helpful
Thank you. I am glad that you found it useful.
Thank you for clearly explaining the concept of depreciation with a workable example. It gave a lot of clarity to me having an engineering background. You've earned a sub and a like.
Thank you.
This is amazing! - you explained this so well!
Thank you. Glad you found it useful.
Very good presentation. You're very clear, and your voice is pleasant to listen to. Thanks!
+Desmond Realty Group Thanks
So amazing! I could only dream of being this great at accounting topics! Thank you for the wonderful lecture.
You are welcome.
Aaliyah Kremzar nice
Ur beautiful. Do U have Instagram?
Really good explanations - with multiple scenarios for a full explanations. The pace was very quick, good for me but could see how it maybe too fast for others. Of course they could just rewind.
Thanks, John Maul. And also noted about the pace. That's very helpful feedback. Appreciated.
That's awesome to remind ppl that the profit or loss from the selling of a fixed asset is the difference between the price it sold for and the net book value and NOT price it sold for and the original cost
Thank you for sharing this information. Its been some years since I took accounting and I was working on a project. I truly enjoyed the refresher course.
Thanks, Sharon. Glad it was helpful.
Great Lecture!!
Brilliantly explained. Thank you.
Thanks for your feedback.
Thanks for the detailed explanation. However, you could probably spend more time on comparing the balance sheet, p&l and cash-flow as there's a sudden influx of information.
thanks so much, i am not an accountant and i did not know how to account for the sale of an asset.
You're welcome, Dina France. I am glad it helped you.
Thank you so much I needed help for school and came across this!! I'm trying to $18250 depreciates 20% in one year I wasn't given much of an example. I'm going to watch the video again I got this !!
I am glad you got it sorted out.
You're just AMAZING! Please keep on covering these financial subjects they are of substantial help to me. Could you please post a cover on Profitability Ratios (ROA/ROE...)? Thank you so much.
Glad you find them helpful.
Excellent lecture! Thank you!
You are welcome!
Hi Benjamin, Thanks for the feedback. There's another video which goes further into the effect of depreciation on the balance sheet, P&L and cash flow. It also deals with the financing decision. Do let me know if this additional video deals with it sufficiently. I've now added the link to this related in the description section.
I have a specific question: if depreciation expense for the car used for commercial activities is allocated in the COGS ? thank you in advance
+elene lortkipanidze Doesn't make any difference to your final profit number.
+elene lortkipanidze No, it goes into overheads. It's only when there is a direct link between the equipment and cost of goods sold eg depreciation of production plant, that you put the depreciation under COGS.
In case of a company that is heavily leveraged (say 80%) where will the repayment of the loan would appear in the P&L statement? Above ebitda or below it?
+Saeed Alhamli Principal repayments do not go through the P&L. Only the interest component.
Very well presented..
Thank you.
Fantastic video so well explained
Thank you.
Thanks for the great explanation!
Loved your explanation, very clear. I would love it even more if you could go a little slower though.
Hi Jessica, You could change the settings of the video speed in UA-cam itself. Click the little wheel (Settings) and choose the speed.
I really appreciate this video! Very helpful!
+Toni Wetrich Thanks. I am glad it was of use.
This video is very effective to improve my knowledge about depreciation thank you very much for video.
i have one question if value of car in balance sheet is zero & Car is still using and the end we sold car in cash value.what will effect on all statement could you please explain. tanks again for you video you are very nice.
Thank you very much .. This is the best video explained depreciation .. i subscribed .. Thanks for the effort .. Can you please do interpretations for the 3 financial statements .. Cashflow & income statement & balance sheet .. And how when u put an entry will affect other statement .. & how the are related .. I couldn't find any 🎥 explain it the way you do ..you are awesome .. I will appreciate it ;)
I think the videos on 3-Way financial statements will help you. Go to : ua-cam.com/video/YZBs-vn0Z0k/v-deo.html
So helpful!!
I'm glad I was able to help.
Thank you SO MUCH
You are welcome. Glad I could be of help.
Absolutely Brilliant! thanks!
You're welcome.
great one....
+ashok taru Saha Thanks
Wow very good !
Thank you.
Is deprecation charge profitable to Organisation....???
Depreciation is an expense.
Very helpful, thank you!
Thank you.
Thanks for the explanation. Totally nailed it. Can I ask about how the assets affect the retained earnings and dividends?
(in your scenario) At the end of the first year, you would have 5,000 in the bank: 4,000 net profit and 1,000 made back from the depreciation of the car.
Is your retained earnings 5,000 or 4,000? - this affects the amount of dividends you can pay out. Would it be 4,000 or 5,000?
Hi Gideon Chew, The Retained Earnings consists of the amount of Net Profit After Tax that is retained in the business. Net Profit After Tax is AFTER Depreciation expense.
The amount of cash you have in the bank has nothing to do with Retained Earnings. Therefore, your dividends would be based on Net Profit After Tax (ie after Depreciation Expense.)
Note that if you have negative Retained Earnings due to prior years' losses, you still cannot pay dividends out of the current year's profit. In Australia, businesses must also pass a solvency test before a dividend can be paid.
+cashflowkungfu awesome! Thanks so much!
You're welcome! Glad I could help.
what assumptions of the trainee are made in creating this training? What are the basics I have to understand to understand this video? Thank you!
You don't need any special knowledge. Are you having difficulty understanding this?
@@cashflowkungfu yes. I have no accounting background and get lost in the credit/debit double entry stuff and general ledgers. I understand depreciation is a tax write-off, but beyond that, I get lost.
@@alanonsr3942 The videos in my channel do not require any technical accounting knowledge eg credit/debt etc. The focus is on understanding what your financials are telling you about your business without any technical knowledge. Have you watched this video yet? Tell me which part you don't understand after you have watched it.
Hello ma'am this is very useful ..
Could you please respond my question .
How can a company with a net loss show a positive cash flow?
Please respond....
Profit (and loss) are not the same as cash flow. Profiti s an accounting concept. It is NOT cash. There can be a lot of non-cash items included in calculating orofit or loss for a speficied period of time.
thank you
You're welcome.
Is Net Book Value deprecation covered?
+Will Matthews What do you mean by Net Book Value Depreciation? Depreciation is calculated on the Book Value of the asset. The Net Book Value is Book Value LESS Accumulated Depreciation.
Awesome
Thanks.
thank you ma'am . this video is very helpful :)
A question: do you depreciate an expensed item?
Depreciation is an expense item. You depreciate fixed asset item. So, the depreciation expense is a non-cash expense. The cash went out when the fixed asset item (eg car or computer) was paid for.
every company wants to show maximum expenses. sometimes show as a miscellaneous exp. to Receive Tax benefit...
As long as the expenses are valid. Depreciation is not a "miscellaneous" expense.
I want a summary of this video
maaam,,,,,if acc dep > 2014 has (50000) & 2013 has (52000)
& if plant asset > 2014 has 270000 & 2013 has 242500 in balnce sheet
in income stmnt depriciation exp is 46500
additional info: 1) new plant asset purchase cost 85000 $ for cash
2)old plant asst having original cost 57500 $ and sold for 1500 $
what will b the effect in cashflows operating activities ???? plz maam clarify ,,,,,,i need to understand this
+raihanul haque Depreciation is eliminated when you are working out your cash flow from operating activities. Depreciation is non-cash. The purchase and sale of plant and equipment do not affect operating cash flows (unless you are in the business of buying and selling plant & equipment - in which case your plant and equipment would be inventory items).
+cashflowkungfu tnx indeed
+raihanul haque You are welcome
Losses must be added to net income to avoid double counting the loss. how?
Could you rephrase the question please? I'm not sure what you query is about.
sir can i have your personal email address ? Then i shall give you my question
May I suggest that you ask your question here.
Thanks :)
You're welcome.
Thank you. It finally makes sense to me LOL...
+Tony Kim You're welcome! Glad that it helped.
ASIAN ARNOLD SCHWARZENEGGER!!!
I don't understand a thing in this video. way beyond my understanding. Not uploader's fault though. My background is engineering. maybe that's why!
I'm sorry to hear that you couldn't follow the explanation.
cashflowkungfu can you suggest me some basic videos to see to understand basic accountancy and cash flow. It will be a major help. Thank you
There are a whole series of short videos in the Cash Flow Kung Fu channel that should be able to help you. I am setting up a blog on my new website as well (check it out in early 2018). In light of your questions, I will include some blogs that go back to the very basics.
cashflowkungfu thanks a lot!
You're welcome!
One of the worst video on depreciation