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Depreciation provides a means to report assets on the balance sheet at a more realistic value than original purchase prices. This makes the financial statements more meaningful to users.
Depreciation has two main purposes.
-- The first is to provide for proper matching of revenues and expenses. Fixed assets provide benefits to a company throughout their useful lives. Thus, some of the expense from purchasing the assets should be recognized during each period of the assets' estimated useful lives. For example, if a farming company buys a tractor, the tractor helps to provide revenue each period. It is appropriate that some of the cost of the tractor be recognized each period to "match" it with the revenue the tractor is producing. If the tractor was not depreciated and instead was expensed in the period in which it was purchased, that period would unfairly bear all of the cost of the tractor, and net income would be understated. Future periods would receive the revenue generated by the tractor but none of the associated costs, and net income in those periods would be overstated.
-- The second purpose is to properly value fixed assets on the balance sheet and account for their devaluation over the course of their lives. If the tractor in the above example was purchased for $20,000, after one year of use it would no longer be worth $20,000. It might only be worth $15,000, for example.
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Depreciation is an application of the matching principle in accounting and is designed to reflect the fact that some assets are used to generate profits over multiple accounting periods. Using depreciation the cost of an asset is spread out (or "written off") over the number of periods you expect it to be of use (called the asset's "Useful Economic Life"). Some people, including some Accountants, will tell you that depreciation is an attempt to show the reduction in the value of the asset. This is wrong. If you want to show the value of an asset then you revalue it.
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Is depreciation tax deductible?
Not, depreciation is not deductible for tax purpose. Because it is not wholly exclusively in production
What is the purpose of a reserve for depreciation and depletion?
To preserve the corpus for the remainder beneficiaries
Depreciation is a very important economic problem and needs to be used in accounting for what purpose?
all of these
Distinguish between depreciation policy and the concept of depreciation?
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
What is the entry for accumulated depreciation?
Debit depreciation accountCredit accumulated depreciation
Is depreciation tax deductible?
Not, depreciation is not deductible for tax purpose. Because it is not wholly exclusively in production
Is homeowners depreciation check's purpose to cover repairs?
No. depreciation is compensation for a loss of value. You can make repairs or do whatever you choose with it.
What is the purpose of depreciation expense and accumulated depreciation?
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.
What is the purpose of a reserve for depreciation and depletion?
To preserve the corpus for the remainder beneficiaries
What is the purpose of a reserve for depreciation or depletion?
to preserve the corpus for the remainder beneficiaries
Depreciation is a very important economic problem and needs to be used in accounting for what purpose?
all of these
How are accumulated depreciation and depreciation related?
Accumulated depreciation and depreciation are related with each other as depreciation is annual expense while accumulated depreciation is the sum of all annual depreciation expenses.
How are accumulated depreciation and depreciation expensese related?
Accumulated depreciation and depreciation are related with each other as depreciation is annual expense while accumulated depreciation is the sum of all annual depreciation expenses.
Why accumulated depreciation exceed depreciation expense?
Depreciation expenses is for one specific fiscal year while accumulated depreciation is the sum of all depreciation expenses that’s why accumulated depreciation exceeds the depreciation if there is depreciation expense in prior year as well.
Distinguish between depreciation policy and the concept of depreciation?
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
What is the entry for accumulated depreciation?
Debit depreciation accountCredit accumulated depreciation
What is the purpose of Section 179?
Section 179 is a tax code that covers the depreciation of equipment purchased by businesses. It's purpose is to encourage spending patterns that will help to improve the American economy.
