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Why is it mandatory that depreciation expense be included in the P and L?
Wiki User
∙ 13y ago
Depreciation expense represents the (systematic) decline in value of fixed tangible assets. The income statement (or P&L) shows the revenues and expenses of a company, including depreciation expense.
Wiki User
∙ 13y ago
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.
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Depreciation expense appears on what financial statement?
Income Statement
Is depreciation an operating expense?
Depreciation is an operating expense but does not involve any cash flow. like salaries,rent insurance etc it is included in the P/L accounts.It is considered as operating because machinery/equipments or any property diminishes its value day by day.
What are the effect of depreciation on profit and loss and balance sheet?
Depreciation is an expense. It should be charged under expense of a P&L Statement. Provision for Depreciation is the total depreciation of a particular fixed asset accumulated over the years. It should be deducted from the figure of the Fixed asset.
Is the depreciation expense added to net income?
Be Careful depreciation is an accounting function but when booked on the P&L it better be going to a depreciation "Sweep Account". Otherwise you are booking depreciation as paper money only! And four or five years down the road you will have nothing to show for it.
How are accumulated depreciation and depreciation expenses similar?
Accumulated depreciation is all of the depreciation ever 'accumulated' against the assets currently in service. It is shown on the balance sheet as a 'contra' (negative) asset, directly below the assets it relates to. Depreciation expense is the current period's depreciation of the assets currently in service. It is shown on the income (P&L) statement as an expense. Example: Business purchased a truck for $20,000 which will last 5 years. For simplicity, we'll use 'straight-line' depreciation. End of Year One: Depreciation expense on Income Statement $4,000 (1/5th of $20,000) Accumulated Depreciation on balance sheet: $4,000 End of Year Two: Depreciation expense on Income Statement $4,000 Accumulated Depreciation on balance sheet: $8,000 (both years) End of Year Three: Depreciation expense on Income Statement $4,000 Accumulated Depreciation on balance sheet: $12,000 (all three years)
In profit and loss statement where do you record bad debts?
In a profit and loss statement, bad debts are recorded as an expense. They are typically included in the "depreciation and bad debt" or "allowance for bad debts" category. This category is a deduction from revenues to reflect the estimated amount of uncollectible debts.
Is depreciation an example of an asset?
Usually depreciation is set up as a contra account to equipment. So in Assets you have an Equipment Account and a Accumulated Depreciation-Equipment Account showing up on the Balance Sheet in the Financial Statements. Keeping the accounting equation in mind, A=L+OE, credits made in the Accumulated Depreciation-Equipment Account are debited in a Depreciation Expense account which affects the Owners Equity side of the equation. This affects the Income Statement.
Why is the depreciation of the financial year shown in the profit-and-loss statement whereas accumulated depreciation is shown in the balance-sheet statement?
Depreciation for the current year is considered an expense and, like all expenses for the financial year, need to be shown on the P & L. As each year passes, the current year's Depreciation Expense gets added to Accumulated Depreciation (most companies do this each month rather than once a year). Accumulated Depreciation, just as it sounds, is an accumulation of all depreciation for an asset. The reason Accum. Deprec. is shown on the Balance sheet is because it is reducing the (book) value of an asset. And all asset (book) values are shown on the Balance Sheet.
Depreciation is equal to?
Depreciation is the cost that is charged to the P&L for writing down fixed assets over their useful lives, for example if a business owns a car that they believe has a useful life of 3 years and cost £6,000. This car would then be written off, or depreciated, over 3 years at £2,000 per yea, or £167 per month, with this cost going through the P&L as an expense every month.
Why depreciation is charged on fixed assets in profit and loss account?
'Asset depreciation serves many purposes, most of which include the recognition that time passage has a wear-and-tear effect on tangible goods, the reduced efficiency that ensues, and money a company must set aside to replace obsolescent equipment. Accounting regulations prescribe guidelines that financial managers must follow to report depreciation charges in a statement of profit and loss. 'A depreciation of an asset is pretty much same with an expense/loss if i may say, so it belongs to the P/L account to show the true net profit of each year. Depreciation is also shown in the balance sheet by reducing the value of an asset to reflect the true and fair value of that asset.
How a limited company reports its fixed asset?
For other than tax reporting purposes, it's financial statements should be the same as any other business... fixed assets and accunmulated depreciation would be on the balance sheet and depreciation expense would be on the income statement. For tax reporting purposes, it depends on how large the company is and how it is taxed. If it is taxed as a Partnership or S-Corporation - below a certain level (don't recall the dollar figure off the top of my head), the company is not required to fill out Shedule L (typically page 4 of the return - the top of which is a balance sheet and it reflects the fixed assets and accumulated depreciation as totals), but it MAY CHOOSE to fill it out and report it anyway. Many tax preparers tend to not fill it out if they don't have to as it eliminates a lot of work on their part. If the company is taxed as a proprietorship then the fixed assets will never show on the return, except as a subschedule that details the depreciation expense on Schedule C.
How did light feel about L in death note?
Light thinks of L as a obstacle and that L has to die. No love included
