Income Statement Depreciation Cost

In the absence of these assets depreciation doesn t exist as an expense on a firm s income statement.

Income statement depreciation cost. Depreciation is a non cash operating activity which is the result of qualitative wear and tear in the use of asset but it has been quantified by the use of accounting principles and assumptions in line with the enterprise s own. For the december income statement at the end of the second year the monthly depreciation is 1 000 which appears in the depreciation expense line item. This expense is most common in firms with copious amounts of fixed assets. The straight line method of depreciation will result in depreciation of 1 000 per month 120 000 divided by 120 months.

It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. Depreciation for income tax purposes is defined by the u s treasuring department bureau of internal revenue bulletin f as a reason allowance for exhaustion wear and tear of property used in the trade or business. It is a non cash expense forming part of profit and loss statements. It would report the 1 500 depreciation on the income statement under depreciation expenses and reduce net income to 7 000 8 500 earnings minus 1 500 depreciation.

The cost each year then is 1 500 7 500 divided by five years. One expense reported here relates to depreciation. The formula of depreciation expense is used to find how much value of the asset can be deducted as an expense through the income statement. For the december balance sheet 24 000 of accumulated depreciation is listed since this is the cumulative amount of depreciation that has been charged against the machine over the past 24.

Depreciation may be defined as the decrease in the value of the asset due to wear and tear over a period of time.