is depreciation a source of fund?

Answer 1

No. It’s a non-money transaction entry. Depreciation charge gives a true cost of business activity; and at the time of replacement of old assets P/L account does not get a jerk to accommodate a huge expenditure at a time.

Answer 2

Sort of.

Depreciation is the idea that a capital asset will go down in value. Different kinds of assets have different depreciation rates according to the government.

Depreciation is more like a phantom expense, than an income. Say I purchase a computer for $1000. Over the next 5 years, the computer depreciates down to being practically worthless. Think of the cost of the new computer being amortized over five years. At the end of the five years, I am expected to have to lay out another $1000 for a new computer.

How can depreciation help you? It can help a business in taxes. Say I purchase a house. I can depreciate the cost of that asset over the next ~27 years. As such, I can deduct more in my taxes, so i pay less in taxes. Since I can deduct more in taxes, I end up with more money in my poket, for the time being.

I hope that clears things up. If you need more information, a tax professional can likely explain it even better than I can.