CCP 01-13-1992 - Laserfiche WebLink

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. Depreciation Expense Page Two Because of the nature of depreciation, if the costs for depreciation and the costs for purchasing new capital equipnent were to both be included in the enterprise budgets, the effect would be charging for the same thin;r twice. '!he budget should have one or the other rot not roth. Depreciation, as defined by the governmental accounting standards book titled, Goverrnnental Accounti.n:r, Auditi.n:r and Financial Reoorti.n:r (GAAFR) states: "Depreciation is an element of cost resulting fram the service of long- lived assets in an economic organization and represents the loss in asset value because of wear, deterioration, obsolescence, and action of the physical elements." In accounting for depreciation, the cost of a fixed asset, less any salvage value, is prorated over the estimated useful life of such an asset, and each period is charged with a portion of such cost. 'Ibrough this process, the entire cost of the asset is ultimately charged off as an expense; hence, an expense for depreciation should be included in the budget. As new equipment is purchased, each year a portion of the cost is written off through depreciation until its useful life is used up. TIle . depreciation expense also includes the water and sewer systems in the ground. Each year a portion of the cost for the respective systems is written off and also charged to the depreciation expense. Depreciation eJql6I1S6S are not recorded in the General Fund because no constructive purpose would be achieved by doing so. Governments are not faced with the same requirements f= profit and loss determination as privatelY-<=led enterprises. Governments do not pay taxes based on income; governments are not traded or sold as are private J::usiness, and any excess of revenues over expenditures is not available for distribution to citizens and taxpayers in the manner that coJ:'fXJrate profits are available for distribution to st=kholders. Governments exist to provide public services and regulatory activities on a continuing basis. '!he general expenditures incu=ed have no causative relationship with and do not generate any general revenues. TJS/ts M92-08 .