Depletion
 |
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 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. |
Related Definitions
Articles Of Interest
-
An Introduction To Depreciation
Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line. -
Accounting For Differences In Oil And Gas Accounting
How a company accounts for its expenses affects how its net income and cash flow numbers are reported. -
Understanding Oil Industry Terminology
The drillers are just one aspect of the oil & gas industry, and by knowing some details of their role, you'll be better suited to make investment decisions. -
What is the difference between amortization and depreciation?
Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally expensed based on the time period over which the asset was ... -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
Explaining Amortization In The Balance Sheet
Amortization is important to account for intangible assets. Read to find out more about amortization. -
Should You Trust Your Instincts On Gold?
The trouble with gold is that even as stocks are going up and the gold price is hurting, investors and central banks are loading up on gold and silver like never before. There’s a disconnect ... -
Understanding Off-Balance Sheet Financing
For anyone who was invested in Enron, off-balance sheet (OBS) financing is a scary term. Off-balance sheet financing means a company does not include a liability on its balance sheet. It is ... -
Top 4 Most Competitive Financial Careers
If your goals include a big paycheck and working for a Wall Street firm, then you need to learn how to meet employers' expectations. -
A Day In The Life Of A Public Accountant
Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
Free Annual Reports