Depletion

Dictionary Says

Definition of 'Depletion'


An accrual accounting method that companies use to allocate the cost of extracting natural resources such as timber, minerals and oil from the earth. Depletion is calculated for tax-deduction and bookkeeping purposes. Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property, depletion is the actual physical depletion of natural resources by companies.

Investopedia Says

Investopedia explains 'Depletion'


Entities that meet the IRS definition of having an economic interest in the property are eligible to claim deductions for depletion. For accounting and financial reporting purposes, depletion is meant to assist in accurately identifying the value of the assets on the balance sheet.


There are two types of depletion: percentage depletion and cost depletion. The IRS requires the cost method to be used with timber. It requires the method that yields the highest deduction to be used with mineral property, which it defines as oil and gas wells, mines, and other natural deposits (including geothermal deposits).


Cost depletion is calculated by taking the property's basis, total recoverable units and number of units sold into account. Percentage depletion looks at the property's gross income and taxable income limit.

comments powered by Disqus
Hot Definitions
  1. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  2. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  3. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  4. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  5. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
  6. Private Equity

    Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
Trading Center