Income Statement
p&l
accumulated depreciation is a part of financial statement while its counteract or effect is recorded into income statement as a Depreciation Expense.
Explain the concept of depreciation and why organisations need to recognise deprecations expense in the Income Statement.
Units-of-production
Depreciation expense is included in the P&L (Profit and Loss) statement because it represents the allocation of an asset's cost over its useful life. By including depreciation expense, the P&L statement reflects the true operational costs associated with the use of assets in generating revenue. It helps provide an accurate representation of the profitability and financial performance of a company over a period of time.
Accumulated Depreciation is reported on the balance sheetbecause it deals with the assets. However, depreciation expense is mentioned on the income statement.
Accumulated Depreciation is reported on the balance sheetbecause it deals with the assets. However, depreciation expense is mentioned on the income statement.
Depreciation expense on the income statement represents the portion of the asset's cost that is allocated as an expense during the reporting period. Accumulated depreciation on the balance sheet is a contra-asset account that reduces the asset's original cost by the total amount of depreciation expense recognized over its useful life. Thus, depreciation expense increases the accumulated depreciation balance on the balance sheet.
Depreciation on the income statement is the amount of depreciation expense that is appropriate for the period of time indicated in the heading of the income statement. The depreciation reported on the balance sheet is the accumulated or the cumulative total amount of depreciation that has been reported as expense on the income statement from the time the assets were acquired until the date of the balance sheet.Let’s illustrate the difference with an example. A company has only one depreciable asset that was acquired three years ago at a cost of $120,000. The asset is expected to have a useful life of 10 years and no salvage value. The company uses straight-line depreciation on its monthly financial statements. In the asset’s 36th month of service, the monthly income statement will report depreciation expense of $1,000. On the balance sheet dated as of the last day of the 36th month, accumulated depreciation will be reported as $36,000. In the 37th month, the income statement will report $1,000 of depreciation expense. At the end of the 37th month, the balance sheet will report accumulated depreciation of $37,000.
Yes depreciation is a nominal account and used to allocated the portion of fixed cost to income statement as an expense for that specific period.
DR. DEPRECIATION EXPENSE X CR. ASSET X At the end of the year Depreciation is charged to the Income Statement.
All expenses recognized in a period are debits. While depreciation expense is a debit (increase in expense) shown in the income statement, accumulated depreciation is usually the offsetting credit (contra-asset reduction in balance sheet).
Depreciation expense reduce the cost of asset through income statement for the useful life of asset and accumulated depreciation account is contra account for asset account in balance sheet to show the total amount of depreciation charged.