Where to Find Depreciation and Amortization

Depreciation and amortization are accounting methods that spread the cost of tangible and intangible assets over their useful lives. Businesses acquire assets for multiple years, systematically spreading out their cost instead of expensing it fully in the year of purchase. This allocation helps match the asset’s expense with the revenue it generates, providing a more accurate picture of financial performance. Understanding where these figures appear is important for evaluating a company’s financial health, preparing tax filings, and assessing business value.

Finding Depreciation and Amortization in Tax Filings

Depreciation and amortization expenses are routinely reported on various United States tax forms, allowing businesses and individuals to account for the gradual decline in value of their assets for tax purposes. IRS Form 4562, Depreciation and Amortization, is a primary document for calculating and reporting these expenses. This form details the specific assets placed in service during the tax year, their cost, and the method used to determine the annual depreciation or amortization amount.

The calculated depreciation and amortization from Form 4562 then flows to other relevant tax forms, depending on the type of entity. For sole proprietors, this amount is transferred to Schedule C (Form 1040), Profit or Loss From Business. Individuals who own rental properties report depreciation on Schedule E (Form 1040), Supplemental Income and Loss.

Corporations report their depreciation and amortization expenses on Form 1120, U.S. Corporation Income Tax Return. Partnerships utilize Form 1065, U.S. Return of Partnership Income, for these expenses.

Finding Depreciation and Amortization on Financial Statements

Depreciation and amortization figures are integral components of a company’s financial statements, providing insights into asset utilization and financial performance. On the income statement, they are presented as operating expenses, reducing a company’s reported profit. This expense reflects the portion of an asset’s cost allocated to the current accounting period.

The balance sheet reflects depreciation and amortization through accumulated depreciation and accumulated amortization. These are contra-asset accounts that reduce the book value of tangible and intangible assets, respectively, on the asset side of the balance sheet. The net amount, often referred to as net book value, represents the original cost of the asset less all depreciation or amortization recorded to date.

On the statement of cash flows, depreciation and amortization are treated as non-cash expenses. Because these expenses do not involve an actual outflow of cash, they are added back to net income in the operating activities section when using the indirect method. This adjustment reconciles net income, which is prepared on an accrual basis, to the actual cash generated from operations. Notes to the financial statements offer detailed disclosures regarding a company’s depreciation and amortization policies, including the methods used, useful lives of asset categories, and the total amounts of accumulated depreciation and amortization. For publicly traded companies, these financial statements and their accompanying notes are accessible in annual reports (Form 10-K) and quarterly reports (Form 10-Q) filed with the Securities and Exchange Commission (SEC).

Finding Depreciation and Amortization in Internal Accounting Records

A company’s internal accounting records are the foundational source for depreciation and amortization data. The fixed asset register serves as the primary detailed record for all depreciable and amortizable assets. This register contains specific information for each asset, including its original cost, the date it was acquired and placed in service, its estimated useful life, and the depreciation or amortization method applied.

The fixed asset register tracks the annual depreciation or amortization expense calculated for each asset and the cumulative accumulated depreciation or amortization over the asset’s life. This detailed record ensures that the correct expense is recognized each period and that the asset’s book value is accurately maintained. The totals from the fixed asset register are then summarized and posted to the general ledger.

In the general ledger, specific accounts are used to record these figures. “Depreciation Expense” and “Amortization Expense” are income statement accounts that accumulate the periodic expense. “Accumulated Depreciation” and “Accumulated Amortization” are balance sheet accounts that serve as contra-asset accounts, reducing the carrying value of the related assets. These internal records are the basis from which all external financial statements and tax filings derive their depreciation and amortization figures.