Question

Why is the depreciation on the income statement even though the asset has already been paid for?

Answer 1

Depreciation is a non cash expense. It is the reduction in the value of asset. It is charged every year, it is calculated with the help of different methods. It is shown in the income statement because it is an expense. At the end of every period, it should be shown on the income statement. Depreciation reduces the net income but does not reduce the cash.

Depreciation follows the matching principle that says, every revenue should be matched with expense. It is important to depreciate value of asset over a period of time, that is why depreciation is shown on the income statement.