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Is an Increase in Depreciation Expense a credit or debit?
An increase in depreciation expence is a credit to the accounts as it reduces asset value that was once debited
What is depreciation cost?
Depreciation is that amount or part of full cost of fixed asset which is allocated to specific fiscal year during which any asset is used to generate revenue.
Why depreciation is nasassary?
Depreciation is necessary because in this way the cost of asset is allocated to all those fiscal years in which that asset is used to generate revenue and if depreciation is not charged for all those years then it is against the matching concept as asset is used to generate revenue for more than one fiscal year but cost is allocated to one specific year.
What is defined as the estimated time period that an asset will be used?
The estimated time period that an asset will be used is known as its "useful life." This period reflects how long the asset is expected to provide economic benefits to the owner before it is retired or becomes obsolete. Useful life is important for accounting and depreciation purposes, as it helps determine how the asset's cost is allocated over time.
What is the source document of depreciation?
The source document of depreciation is typically the asset's acquisition invoice or purchase order, which provides details about the asset's cost, useful life, and method of depreciation. This document serves as the basis for calculating depreciation expenses over time, ensuring that the asset's value is systematically allocated in financial statements. Additionally, any relevant supporting documentation, such as maintenance records or appraisals, may also be considered in the depreciation process.
Is an Increase in Depreciation Expense a credit or debit?
An increase in depreciation expence is a credit to the accounts as it reduces asset value that was once debited
What is accumulated depreciation on a statement of cash flow?
Accumulated depreciation is the amount of a long-term's asset's cost that has been allocated to depreciation since the time the asset was acquired.
What is depreciation cost?
Depreciation is that amount or part of full cost of fixed asset which is allocated to specific fiscal year during which any asset is used to generate revenue.
Why depreciation is nasassary?
Depreciation is necessary because in this way the cost of asset is allocated to all those fiscal years in which that asset is used to generate revenue and if depreciation is not charged for all those years then it is against the matching concept as asset is used to generate revenue for more than one fiscal year but cost is allocated to one specific year.
How does depreciation expense on the income statement relate to accumulated depreciation on the balance sheet?
Depreciation expense in income statment is the entry to reduce the fixed asset and charge to income statement of fiscal year in which asset is use to earn revenue while accumulated depreciation in balance sheet records that how much depreciation charged from start to till date.
What is defined as the estimated time period that an asset will be used?
The estimated time period that an asset will be used is known as its "useful life." This period reflects how long the asset is expected to provide economic benefits to the owner before it is retired or becomes obsolete. Useful life is important for accounting and depreciation purposes, as it helps determine how the asset's cost is allocated over time.
What is the source document of depreciation?
The source document of depreciation is typically the asset's acquisition invoice or purchase order, which provides details about the asset's cost, useful life, and method of depreciation. This document serves as the basis for calculating depreciation expenses over time, ensuring that the asset's value is systematically allocated in financial statements. Additionally, any relevant supporting documentation, such as maintenance records or appraisals, may also be considered in the depreciation process.
Does accumulated depreciation close at the end of the period?
Accumulated depreciation does not close at the end of the accounting period. Instead, it is a permanent account that carries its balance forward to the next period, reflecting the total depreciation expense recognized against an asset since its acquisition. While depreciation expense is closed to the income summary at period-end, accumulated depreciation remains on the balance sheet to reduce the asset's book value over time.
Why does the accumulated provision for depreciation has a credit balance?
Accumulated provision for depreciation has a credit balance because it represents the total amount of depreciation expense that has been allocated against an asset since its acquisition. This account acts as a contra asset account, reducing the book value of the related asset on the balance sheet. As depreciation is recorded over time, it increases the credit balance, reflecting the wear and tear or obsolescence of the asset. Thus, it offsets the asset's original cost, showing its reduced value.
What factors must be considered in determining the period of depreciation charged?
In determining the period of depreciation to be charged, one must consider the cost of the asset and its estimated salvage value. The usual life of the asset must also be considered together with its obsolescence.
Diminishing balance method?
Think along the lines of Compound Interest (but in reverse) For example- Asset of 100 depreciating by 20% p.a On Straight Line Year1 Asset 100 Depreciation 20 Year2 Asset 80 Depreciation 20 Year3 Asset 60 Depreciation 20 Year4 Asset 40 Depreciation 20 Year5 Asset 20 Depreciation 20 Year6 Asset 0 On Diminishing Balance Year1 Asset 100 Depreciation 20 Year2 Asset 80 Depreciation 16 Year3 Asset 64 Depreciation 12.8 Year4 Asset 51.2 Depreciation 10.24 Year5 Asset 40.96 Depreciation 8.192 Year6 Asset 32.77 .... and so on until the asset tends to 0 (will never technically reach 0)
What is an idle asset?
Idle asset is that asset which is not utilized in the fiscal year to earn revenue of business. Depreciation of idle asset is not charged for that specific period under which it remained idle.
