What is the accounting record for depreciation?
Depreciation concerns the amount of value lost by asset used for business purposes due to wear while used. The accounting record for depreciation is represented both in the company's balance sheet and in the profit and loss statement. In the profit and loss statement, it is a debit account for depreciation, which represents the amount of depreciation that the asset has suffered in this accounting period. On the other hand, the recording in the balance sheet is a loan and represents the amount of depreciation that has accumulated until this point. This loss of value, known as depreciation, is an important principle for businesses to understand when it will be time to build their accounts. Recording for depreciation is based on the principle of conformity, which is lost by the asset compensated by Value lost over time.
In the balance sheet, the entry for depreciation over time accumulates. It is known as the Contra account because it works against the costs of depreciation and is usually given under the auspices of the assets, ROStin and equipment. The record is credit in the balance sheet and transmits from one period to another. For example, a trade vehicle, which was depreciated for five years of $ 200 (USD) per year, would have accumulated depreciation of $ 1,000 in the balance sheet.
On the other hand, input for depreciation in the profit and loss statement, which determines the taxes that the company has to pay, is a debit account and is only temporary. The annual depreciation amount is called depreciation costs. This amount is zero and does not transmit each year. Using the above example, the costs of depreciation for the vehicle in the first year would be $ 200 and the second, third, etc.
The depreciation amount is calculated using several methods, and two general methods are a method of equal lines in which the same amount is depreciated every year, and accelerates depreciation in which the larger amount is depreciated for the first year. It is important to note that entry into depreciation is not a loss of cash for business, but a loss of income. In addition, the cost of aKtivum in the balance sheet after depreciation may not be representative of the actual market value of the asset, but instead it is simply an attempt through accounting to balance costs and costs.