What Is Depreciation Expense?
Depreciation expense is the value of fixed assets transferred to product costs due to wear and tear during use. Fixed assets always maintain a complete physical form during their effective use, but due to wear (tangible losses) and scientific and technological Development (intangible loss), the value of fixed assets is gradually reduced. In order to ensure the physical reproduction of fixed assets, the wear value of fixed assets due to use is calculated by depreciation expenses, which is formed as a period of expense from product sales income. A fund preparation for the renewal and transformation of fixed assets. The size of each period's depreciation fee depends on three factors: (1) the original value of the fixed assets; (2) the difference between the variable asset income after the retirement of the fixed assets after deducting the cleaning fees; and (3) the expected useful life of the fixed assets. The calculation methods of depreciation expenses include straight-line method, declining balance method, sum of years method, annuity method and sinking fund method. In western financial accounting, "depreciation expense" is used as an asset account to record the depreciation expense calculated according to the selected depreciation method and should be matched with the current income. [1]
Depreciation expense
- There are a variety of methods for calculating depreciation. Different methods may be used to calculate the depreciation expenses for an accounting period, which will affect the product cost of the accounting period and the net book value of fixed assets. , So you must carefully choose how to apply depreciation based on your situation. In the same enterprise, different depreciation methods can be used due to different uses and performance of fixed assets.
- For example, the house of the electronics industry enterprise can use the age method (linear method) like the houses of other enterprises, and the machinery and equipment such as electronic machinery, electronic instruments, meters and supporting computers have developed rapidly due to science and technology. If it is scrapped in advance, it cannot recover the original value and suffer losses.
- Determination and collection of depreciation expenses:
- The determination and collection of depreciation expenses is one of the conditions for accurate calculation of product costs. To do this job, in addition to choosing the appropriate depreciation method, you must do the following:
- (1) Correctly determining the scope and value of accrued depreciation fixed assets
- From the perspective of accrual scope, the fixed assets in use of an enterprise, including operating fixed assets, non-operating fixed assets, leased fixed assets, etc., should generally be depreciated. The specific scope includes: houses and buildings; Machinery and equipment, instrumentation, transportation; seasonal deactivation,
- Because depreciation expense accounts for a small proportion of product costs, it is generally treated as an indirect expense, which is included in related comprehensive expenses according to its economic use and place of use.
- For example, the depreciation expenses of the fixed assets used in the basic production workshop should be recorded in the depreciation expense items in the detailed account of manufacturing costs; the depreciation expenses of the fixed assets used in the auxiliary production workshops should be recorded in the relevant items of the auxiliary production expense detailed account; The depreciation expenses of the fixed assets used shall be recorded in the depreciation expense items in the management expense detailed account; the depreciation expenses of the fixed assets used by the sales department shall be recorded in the relevant items in the product sales expense detailed account.
- If the enterprise is producing a single product, all costs incurred by it will be borne by the product, and the cost item can be set according to the economic content of the cost. In this case, all expenses are direct expenses, so depreciation expenses can be directly included in the "depreciation expense" cost item in the "production cost" detail account.
- For modern technology-intensive enterprises, the proportion of depreciation expenses in product costs will become larger and larger. In this case, the depreciation expense can also be listed as a separate cost item. If the enterprise and workshop only produce one product, the depreciation expense can be directly included in the "depreciation expense" item of the production cost breakdown. If the enterprise and workshop produce For a variety of products, the depreciation expense can be distributed among the various products according to the proportion of machine working hours and recorded in the production cost detailed account.