Income Statement Accounting For Depreciation

The depreciation expense account is a part of the income statement and it is a temporary account.

Income statement accounting for depreciation. Depreciation expense is recognized on the income statement as a non cash expense that reduces the company s net income. Depreciation is an expense which is charged in the current year s income statement. The quarterly income statements. These entries are designed to reflect the ongoing usage of fixed assets over time.

As your equipment ages and deteriorates your accounting has to reflect that. Depreciation on the income statement. Companies can calculate depreciation expense using a number of different methods. How much of the interest shall be capitalised means included in the cost of the plant and how much shall be charged to the income statement.

The accounting for depreciation requires an ongoing series of entries to charge a fixed asset to expense and eventually to derecognize it. Physical assets such as machines equipment or vehicles degrade over time and reduce in value incrementally. Each accounting period accountants record depreciation expense on the income statement that represents the use of the asset. Depreciation expense is an income statement item.

Using our example the monthly income statements will report 1 000 of depreciation expense. Share of profit of associates. Accumulated depreciation is the total amount of depreciation expenses that have been charged to expense the cost of an asset over its lifetime. It is accounted for when companies record the loss in value of their fixed assets through depreciation.

At the end of each accounting period the balance from the depreciation expense account is moved to the accumulated depreciation account and the depreciation expense account will eventually begin the new accounting period with a zero balance. Interest for the period 1 1 2007 to 30 9 2008 shall be capitalised and interest for the period 1 10 2008 to 31 12 2008 shall be charged to income statement. Depreciation is instead recorded in a contra asset account namely provision for depreciation or accumulated depreciation. Depreciation expense and accumulated depreciation.

Depreciation is the gradual charging to expense of an asset s cost over its expected useful life the reason for using depreciation to gradually reduce the recorded cost of a. However depreciation is not deducted from non current assets directly.