Hey there students, welcome to the next video. Today, we're going to talk about what is depreciation. Now, what is it? I'm sure you've heard that word before. Let's talk about what it is and a few other terms that are involved. Now, let's say you buy a car. You're going to buy it with cash. Now, do you consider this an expense when you buy that car? If you said yes, I'm afraid you're incorrect. Not in accounting. When you buy a car or any other type of equipment, building, land, any type of fixed asset is what we call it, you capitalize it. You don't expense it. So, when you buy that car and you capitalize it, it goes on your balance sheet as illustrated here. When you buy that car, it goes on your balance sheet. We call that capitalization. Capitalizing something is when you don't expense it right away, but actually put it as an asset on your balance sheet. Now, over time as you start to use this car, that is when you slowly expense it. So, as I was saying, when you start using that car and you start using it over time, that car is slowly expensed. That's what we call a depreciation expense. As you slowly use it and time passes, you expense that car, and that depreciation expense goes on your income statement. Now, assets, balance sheet, income statement, if you're not sure what those are, that's okay. I actually just created a full course where you can analyze financial statements, learn all about the balance sheet, income statement, cash flow statement, and much, much more. Look in the description below or you can go and check out that course and see if it's right for you. Now, next, we're going to talk about what...
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