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What is the Difference Between Expensing and Depreciating?

Current Assets vs. Capital Assets

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Expensing vs. Depreciating

In brief, short-term business purchases are expensed, and long-term assets are depreciated. For example:

  • Operating Expenses
    Operating expenses are those expenses every business has, like rent, equipment rental, utilities, supplies, postage, dues and subscriptions....you get the idea. Operating expenses are important because they reduce the taxable income of the business; they are "deductible." In order to be deductible, expenses must be:

  • Depreciation of Assets
    Long-term assets that are used in a business can be deductible through the process of depreciation. That is, the cost of the asset is spread over a period of time, as determined by the useful life of that asset. For tax purposes, these assets are called "capital expenses."

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