Depreciation in Accountancy

Depreciation in accountancy refers to the decrease in the fair value of an asset and the allocation of the original cost of the assets to periods in which the assets are used.

The decrease in value of the asset due to depreciation affects the balance sheet of a business or entity.

Businesses depreciate long-term assets for both accounting and tax purposes to allocate the cost of the tangible asset over its useful life span.

The method of depreciating the asset affects the net income, and thus the income statement that a business reports.

The cost allocated in a given period is equal to the reduction in the value placed on the asset, which is initially equal to the amount paid for the asset.

The two aspects of depreciation in accountancy are the actual reduction in the fair value of an asset and the allocation of the original cost of the assets to periods in which the assets are used.

The purpose of depreciating long-term assets for both accounting and tax purposes is to allocate the cost of a tangible asset over its useful life span and to determine the net income and affect the balance sheet of a business or entity.

Depreciation allocation affects the net income and income statement by allocating the cost as depreciation expense among the periods in which the asset is expected to be used.

The cost allocated in a given period is equal to the reduction in the value placed on the asset, initially equal to the amount paid for the asset and subsequently related to the amount expected to be received upon its disposal.

The decrease in the value of assets and the method used to reallocate the cost of a tangible asset is known as depreciation.