Can depreciation be considered as a source of internal fin.?

I am not getting you clearly,, how could be depreciation considered as internal finance as it is the non-cash item.

Dear Shruti,

Depreciation can be considered as source of internal finance. In one way as no cash is paid against this head of expense,internally finance is generated to the extent the amount stands to the debit of this account. The other way round when it is added back to profits of the firm to arrive at the earnings of the firm it definitely adds to the earnings and increases the earnings of the firm.Hence, it can be considered as internal source of very short term finance.

Regards and warm wishes for the new year-2012.

Vithal.

a debatable issues...........................but i say yes it is a source of internal finance

Depreciation is the amount write off in respect of fixed assets which purchased through cash/finance.
In A/cs it shown in P & L and for understanding it can be considered a recovery of Fixed assets amount in terms of earning propotionate to expenses.

We all know, retained earnings/reserves considered as internal finance resources which ascertained after deducting Tax and Depreciation...

depreciation is proportionate recovery of initial outflow for purchase of fixed assets and an amount of earning over it can be considered as internal finance.

Originally posted by : Yogesh Bhandari
	Depreciation is the amount write off in respect of fixed assets which purchased through cash/finance. In A/cs it shown in P & L and for understanding it can be considered a recovery of Fixed assets amount in terms of earning propotionate to expenses. We all know, retained earnings/reserves considered as internal finance resources which ascertained after deducting Tax and Depreciation... depreciation is proportionate recovery of initial outflow for purchase of fixed assets and an amount of earning over it can be considered as internal finance.

Fully concur with this reply 

There are several sources of internal finance. One is depreciation, a tactic that increasescash flow by allowing companies to write down the value of assets over time. Depreciationcan be a very powerful accounting tool when it is applied correctly. As assets are depreciated, tax liability decreases, allowing the money to keep funds that it otherwise would have needed to use to pay taxes. This frees up capital for investments and other endeavors.

There is no doubt it is an internal resource for all purposes.

kkm

Depreciation is a source of internal finance though its non cash item in books but its a recognising of the value of asset which will reduce each year and attempting to identify amount of cash to set aside when the asset is no longer in use to us... Its also being considered as an expense to reduce our taxable income....

Whatever may be the outcome of such controversy, the fact remains that the depreciation is a sum that is set apart out of profits and retained within the business and finance the capital needs in the normal business routine, and as such depreciation in true academic sense be deemed as a source of internal finance.