Depreciation is really common term in financial world. Most of the people who are
related to financial sector are actually familiar with this term. Depreciation means
decrease in the value of assets over a period of time. It is calculated according to the
matching principle. It is an expense which does not include any cash and it consider
the natural depreciation of company’s assets. Products like computers, machineries and
printers depreciate in their value with use. But purchasing assets means a different matter
and it means that you need to record the purchase of an asset on a balance sheet. Then
you can record it on the income statement. Depreciation affects business and entities
as well as the net income. Depreciation follows method like fixed percentage method,
straight line method and declining balance method. Depreciation starts from the day its
use is started. As the method of depreciation varies with companies so the values also
differ. These expenses are recorded by companies for making reports of finance and
taxes. Journal entries of depreciation are also recorded in the cash book and the general
book of ledger. It helps to give a complete scenario of the profit and loss of the company.
Depreciation is recorded by calculation on the straight line method which is a common
method and it helps to divide the expense thoroughly over the time period. The initial
purchase can be record by debiting the asset and crediting the amount paid for it in the
credit account. Finally you can accumulate all the depreciation in a year and show it in
the income statement of your balance sheet. Hence the journal entry for depreciation
expense is shown on the debit side whereas the accumulation depreciation appears on the
credit side. Depreciation can be properly recorded the depreciation expense account can
be debited and accumulated depreciation account can be credited by a bookkeeper.
Depreciation is of great economical benefit for any company. The importance of
depreciation cannot be ignored by anyway. That is why most of the companies give
major attention on there depreciation. They are always careful and conscious to get it
done properly. It is an important part which needs to be handled by experts. Products
like machineries, printers, furniture used in an organization all has its own depreciation
over the periods of its usage and hence is recorded as expense in the income statement of
the year. Depreciation programs are equally supported by public officials for economic
growth and specially in case of acquiring long term asset. It helps to improve the
unemployment number in the city and also support the economic activity to a large
Depreciation is very useful and necessary for a company. It helps to understand the
financial strength of a company as well as the life of an asset. Depreciation is recorded
in income statements and other journal books of accountancy to get help in times of
managerial decisions of the company. Some company also hires professionals to help
theme in the accountancy work.
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