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Depletion (Financial Accounting)

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This video explains what depletion is in the context of financial accounting. An example is presented to illustrate how natural resource assets are depleted over time, along with the effects on the balance sheet and income statement and the associated journal entries. Edspira is your source for business and financial education. To view the entire video library for free, visit http://www.Edspira.com To like us on Facebook, visit https://www.facebook.com/Edspira Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com To follow Michael on Facebook, visit https://facebook.com/Prof.Michael.McLaughlin To follow Michael on Twitter, visit https://twitter.com/Prof_McLaughlin
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Text Comments (9)
ETHIOPIA FIRST (1 year ago)
Nice description i love it.
arah opalec (3 years ago)
It really helps ! Thank you !
layben1957 (3 years ago)
Thank you! Great job!
Ahmed Mahmoud (3 years ago)
The best!
Shamari Benton (4 years ago)
Hey, Thanks for the video but I'm not sure why inventory would increase to 100,000. If the mining company extracted 50,000 tons of ore shouldn't the value of that be the inventory? I don't understand why you are multiplying the cost per depletion (2$ per ton) by the 50,000 of ore to come up with inventory value. That doesn't make sense.
Edspira (3 years ago)
@Shamari Benton What we need to do is allocate the cost of the natural resource to accounting periods.  The fair value of the ore doesn't come into play until we recognize revenue.  The revenue (derived from fair value) minus the cost (derived from depletion) will tell us how much profit the mining company made.
leah K (4 years ago)
Thank you, Sir! The best explanation!
Janelle Barbour (4 years ago)
Great video...but could you also do an example when the there is the cost of production that excludes the depletion rate?
English commerce (4 years ago)
that's really amazing explanation 

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