Depreciation fund in simple words: where is the company's money?

And what is the depreciation fund and where is this money?

Surely someone has heard such a phrase.:

"We will finance the purchase from the depreciation fund."

And a logical question immediately arises.:

And what kind of foundation is this? Where is this money? Are these some kind of separate funds of the company or not?

Let's put it in simple terms.

Where is the company's money actually located?

When an organization needs to buy something - equipment, raw materials, supplies, pay for energy, services, or perform another purchase - real money is transferred to the supplier.

And they are usually located on the checking account of the organization.

We have money in the account - we can pay.

We don't have the money - we can't pay.

If you need money, but your own funds in the accounts are not enough, the organization can attract a loan. The bank transfers the money to the company's account, after which the company uses it to pay for necessary purchases.

That is, in real life, everything is quite simple:

Any purchase is financed with real funds at the disposal of the company.

And here the question arises:

And where is the depreciation fund?

Depreciation is not money yet

This is where many people get confused.

Depreciation is not a separate bundle of money that is automatically set aside somewhere every month.

This is primarily an economic mechanism for the gradual transfer of the cost of fixed assets to the cost of manufactured products.

For example, the company bought the equipment.

The equipment has been used for more than one day and more than one month. Therefore, its cost is usually not immediately included in the entire cost of production.

It is gradually transferred through depreciation charges.

As a result, part of the cost of the equipment is included in the cost of production.

The products are on sale.

The company receives revenue.

But this does not mean at all that the money received automatically goes into some kind of separate depreciation fund.

In most cases, all the money goes into the general cash flow system of the enterprise.

These funds are simultaneously used to pay for:

raw materials;
materials;
energy;
salary;
taxes;
services;
loans;
equipment and other investment expenses.

Then what is the depreciation fund?

In fact, it is important to distinguish depreciation as an estimated economic value and depreciation fund as a real cash management tool.

By itself depreciation calculation does not yet create a separate monetary fund.

In order for the depreciation fund to really exist not only on paper, but to be a real and manageable financial resource, the company must actually form it.

That is, after receiving the proceeds, a certain part of the funds should be sent to this fund.

For example, an enterprise may regularly transfer the corresponding amount to a separate bank account or subaccount.

And this account can already be called quite specifically:

"Depreciation fund".

That's when everything becomes clear and tangible.

There is money in the depreciation fund - the company really has the means to finance investments.

It is necessary to purchase new equipment - the fund's money is being used.

The company previously attracted an investment loan for the purchase of equipment - the fund's funds can be used to repay it.

There is no money in the fund, which means that there is virtually nothing to finance investments from the depreciation fund.

That's when the concept of "strong""financing through the depreciation fund" really takes on a specific economic meaning.

And what happens in practice?

And that's where the fun begins.

It is very common to see in the company's documents:

Source of financing: depreciation fund.

But when it comes time to pay for the purchase, the money is simply transferred from the company's general checking account.

All proceeds go there as well.

Almost everything else is paid from the same account.

And then a logical question arises.:

And how did we determine that this particular purchase was paid for by the depreciation fund?

Physically, money does not have a tag:

"This is depreciation money."

The money in the shared account is depersonalized.

The proceeds arrived today.

The raw materials were paid for from it tomorrow.

The day after tomorrow - wages.

Then the equipment.

At the same time, it can be written in the documents that the equipment was purchased "at the expense of the depreciation fund."

But if the real money was not specifically isolated and accumulated, then a logical question arises.:

And what exactly do we call a depreciation fund in this case?

It turns out an interesting situation

In the same way, theoretically, you can start saying:

raw materials fund;
energy fund;
salary fund;
repair fund;
the tax fund.

But by themselves, such names do not create real money yet.

If an enterprise wants to create a real fund, it must be an element of a real financial management system.<

That is, it should be clear:

how many funds are in the fund;
where did these funds come from;
for what purposes they can be used;
how many funds have already been used;
what balance is actually available.

The most understandable and transparent way to make such a fund real is to actually separate the corresponding funds in a separate account or subaccount.

Then the fund ceases to be just an economic term.

It becomes a real management tool.

What is the main problem?

The problem arises when economic terms begin to be used formally, without linking them to the real money management system of the enterprise.

Write in the report:

depreciation fund

it's not difficult.

It is much more important to answer another question.:

Where exactly is the money from this fund located and how much is actually available to finance the purchase?

If the company does form a depreciation fund, then the answer should be very specific.

Here is the fund's account.

Here are the funds received into it.

Here are the funds used.

Here's the remainder.

And this is how the fund differs from the usual line in the report.

And the main conclusion

Depreciation is not money.

Depreciation itself does not create a depreciation fund.

The depreciation fund becomes real only when it has specific funds that the company can manage.

If an enterprise wants to use the depreciation fund as a tool for financing investments, equipment upgrades, or repayment of investment loans, these funds need to be really formed and isolated.

Then you can open the corresponding account at any time and see: