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A company acquires a machine that costs 60 000 and which has a useful life of five years.
Income statement depreciation account. The monthly journal entry to record the depreciation will be a debit of 1 000 to the income statement account depreciation expense and a credit of 1 000 to the balance sheet contra asset account accumulated depreciation. This artificially lowers a company s net income and skews the cash movements listed on the income statement. Depreciation is used to account for declines in the value of a fixed asset over time. Depreciation is instead recorded in a contra asset account namely provision for depreciation or accumulated depreciation.
To correctly account for monthly cash flows accountants add back the depreciation expense to the net income. The straight line method of depreciation will result in depreciation of 1 000 per month 120 000 divided by 120 months. Doing so lowers the carrying value of the relevant fixed assets. At the end the researcher found out that depreciation affects income statement reporting of uba enugu to a large extent.
The researcher made use of statistical package for social sciences spss in analyzing the data collected from the annual reports and account of the bank. Example of depreciation usage on the income statement and balance sheet. When depreciation expenses appear on an income statement rather than reducing cash on the balance sheet they are added to the accumulated depreciation account. Depreciation on the income statement is an expense while it is a contra account on the balance sheet.
However depreciation is not deducted from non current assets directly. This means that it must depreciate the machine at the rate of 1 000 per month.
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