Is depreciation a source of cash ?

Is depreciation a source of cash ?

The answer is : yes , depreciation is considered a source of cash . 

Depreciation is considered an expense , so how ?

In the field of economy and feasibility studies there is an important concept which is called ( Opportunity Cost ) . This concept is used when we compare between two alternatives and we  apply it  in our ordinary life without being aware . For example when you compare between  travelling on an air-conditioned train comfortably and travelling on an ordinary train with less cost . You have to choose either to pay less or to be comfortable .

 Opportunity cost ( the most important accounting concept ) :

This concept considers saving in expenses as gained profits . Expenses saving is a gained profit from an economic perspective  ,apart from the accounting view .Suppose that the  tax depreciation value was 1000 L.E.

This minimizes the tax-controlled profits to 1000 L.E.  

This means that if the tax rate is 25 % , then I saved 250 L.E.

The concept of opportunity cost says that the 250 L.E. which were saved by the depreciation are considered as new to the company . That is, any saved pound is like a new pound in the company , therefore from an economical perspective , depreciation is considered a source of cash . 

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What are the cases of using the concept of opportunity cost ?

One of the most common cases of using the concept of opportunity cost and considering depreciation as a  source of cash,  is on   comparing between purchasing a machine or renting it . The crucial  point here is tax saving resulting from depreciation .

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