Dictionary / Depletion
What does Depletion mean in accounting?
Quick definition
Cash & bankingThe exhaustion of a natural resource: applied to an oil or mineral deposit, standing timer, and the like. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
The oak you cut is the write-down
You run a millwork shop. Standing timber on your books is $72,000 for a tract you estimated at 240 thousand board feet, so remaining cost is $300 per thousand. In October you harvest 22 thousand board feet of oak and sell the logs to a lumber mill for $11,000; at the October 31 close you journal the trees used up (debit Depletion expense $6,600, credit Accumulated depletion $6,600) in QuickBooks Online or Xero, not as a bank-match recode of the deposit. The P&L shows the sale and the exhaustion; the balance sheet timber balance drops. Skip the journal and October looks like the trees were free.
The crusher is depreciation, not this
You run a small gravel pit. On June 12 you buy a used crusher from an equipment dealer for $42,000 and put it in service on the pit. At the June 30 close you start a $700 monthly write-down and label it depletion because the plant sits on the deposit. The crusher is a fixed asset: recode that journal to depreciation expense and accumulated depreciation. Depletion is only for the gravel you extracted, posted from June scale tickets times remaining cost per ton, not from the machine's useful life.
Why it matters
Depletion is the write-down for using up a natural resource you own (standing timber, a mineral deposit, or an oil or gas interest), and most small businesses never post it. It shows up when you harvest, extract, or produce from a property you capitalized, usually at period-end from the units taken that period. Skip it and the sale looks like pure profit while the resource still sits at full cost on the balance sheet. Call the write-down depreciation expense and you treat a woodlot or a pit like equipment; the leftover book after prior depletion is depleted cost, not this period's charge.
Further reading
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What is Depletion in bookkeeping?
The exhaustion of a natural resource: applied to an oil or mineral deposit, standing timer, and the like.
When should I use Depletion?
Use Depletion when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Depletion?
Depletion is used for depletion entries, while Daybook covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.