Depreciation Expense, Office Equipment - from Operating Expense Budget

Deprecation Expense is an expense that attempts to recognize the reduction in value of fixed assets. By lower the value, through deprecation, companies can better estimate the current market value of their fixed assets.

Recall from Murray's Fixed Asset Budget, "depreciation on the office equipment" was estimated at $1,400 for 200X and $3,200 for 200Y. As a result, Murray's 200X Forecasted Income Statement would show an account called "Deprecation Expense on Office Equipment" amounting to $1,400. In addition, Murray's 200Y Forecasted Income Statement would show an account called "Deprecation Expense on Office Equipment" amounting to $3,200.

Murray's 200X and 200Y Forecasted Cash Flow Statement would NOT be affected by the office equipment's deprecation expense because DEPRECATION IS A NON-CASH EXPENSE. In other words, deprecation does not require the use of cash.

Please refer to Budget 8 entitled 'Developing your Fixed Assets Budget", for further information on Murray's Office Equipment Deprecation Expense.