11.1. Basic Concepts
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## 11.1. Basic Concepts

This chapter will present some of the techniques used to keep track of the changing values of assets, IE: depreciation, unrealized gains, capital gains.

Certain resellable assets can change value over time, such as stocks, bonds, houses, or cars. Some assets (eg: a stock) could increase in value, some (eg: a car) could decrease in value. It is important to be able to track some of these time-dependent asset valuations, this chapter will show you how.

Probably everything you own will increase or decrease in value over time. So, the question is for which of these assets should you track this changing value? The simple answer is that you only need to track this for items which could be sold for cash in the future or which relate to taxation.

Consumable and disposable items (eg: food, gas for your car, or printer paper) are obviously not involved. Thus, even though the new clothes you recently bought will certainly depreciate, you would not want to track this depreciation since you have no intention of reselling the clothes and there is no tax implications to the depreciation on clothing. So, for this example, the purchase of new clothes should be recorded as a pure expense... you spent the money, and it is gone.

Depreciation is the effect in which the value of an asset decreases with time. The often used example of an asset to which this is often applied is an automobile. An automobile holds retained value after the purchase date, but this value decreases with time. If you hold assets for business purposes, their depreciation can be treated as a deduction for tax purposes.

Depreciation is usually recognized as an ongoing (accrued) expense, gradually reducing the value of an asset toward zero.

Normally, depreciation is only calculated on assets used for professional or business purposes, because governments don't generally allow you to claim depreciation deductions on personal assets, and it's usually pointless to bother with the procedure if it's not deductible. The only case where you may want to track depreciation for personal assets would be if you will sell the asset in the future and you want to track your potential personal worth.

| Note
Warning: Be aware that different countries can have substantially different tax policies for depreciation; all that this document can really provide is some of the underlying ideas to help you apply your "favorite" tax/depreciation policies.

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