In
accounting
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...
, an accretion expense is a periodic expense recognized when updating the
present value of a
balance sheet liability, which has arisen from a company's obligation to perform a duty in the future, and is being measured by using a
discounted cash flow
The discounted cash flow (DCF) analysis is a method in finance of valuing a security, project, company, or asset using the concepts of the time value of money.
Discounted cash flow analysis is widely used in investment finance, real estate devel ...
s ("DCF") approach.
[Cheri Reither Mazza, PhD, CPA]
"SFAS 143 on Asset Retirement Obligations"
''The CPA Journal - New York State Society of CPAs'', January 2003, Retrieved on 28 April 2013.
See also
Accretion (finance).
In particular, "accretion expense" is a phrase used in topic 410-20 of the United States GAAP Codification of Accounting Standards (
SFAS 143 143 may refer to:
*143 (number), a natural number
*AD 143, a year of the 2nd century AD
*143 BC, a year of the 2nd century BC
*143 (EP), ''143'' (EP), a 2013 EP by Tiffany Evans
*143 (album), ''143'' (album), a 2015 album by Bars and Melody
*143 (2 ...
), which describes the reporting of
asset retirement obligation An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset in which the timing or method of settlement may be conditional on a future event, the occurrence of which may not be within the ...
s. This kind of liability typically has a long and predetermined life on a company's balance sheet, and hence, as mentioned, it is valued via DCF. The accretion expense amounts to a change in the liability due to time and the discount rate applied.
In general, it is not to be expected that a company's statement dates will coincide with the anniversary dates of these commitments. Typically, a company prorates its accretion expense based on the amount of time that it maintained the underlying commitment during the period .
Notes
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Expense