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Why is depreciation recorded?

  1. Why is depreciation recorded?

Business   Accounting   
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Answer #1

--Depreciation is recorded to proportionately charge the cost of Fixed Assets to the Income Statement as an expense.

--It's been assumed that Fixed Assets (Plant Property & equipment) are used to operate the business and earn revenue for more than 1 year. Hence, allocating whole of the cost of the asset to Income Statement in just one year is not a correct practice.

--Hence, the cost of asset is taken to Income Statement as 'depreciation expense' in a systematic manner over the useful life of the said asset. Such depreciation amount can be calculated by any method prescribed for calculating the depreciation amount.

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