Depreciation entry in accounting is a systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting the asset\u2019s gradual loss in value due to wear and tear, obsolescence, or usage.<\/p>\n
In accounting, depreciation entry records this non-cash expense in the books, ensuring that the cost of the asset is matched with the revenue it helps generate (matching principle) and complies with accrual-based accounting standards like IFRS and GAAP.<\/p>\n
The most common depreciation entry under the straight-line method involves debiting Depreciation Expense (an income statement account) and crediting Accumulated Depreciation (a contra-asset account on the balance sheet).<\/p>\n
Depreciation is the accounting process of gradually writing off the cost of a tangible fixed asset (like machinery, vehicles, buildings, furniture, computers, etc.) over its useful life.<\/p>\n
Instead of charging the entire cost as an expense in the year you buy the asset, depreciation spreads that cost across the years the business actually uses the asset. This follows the matching principle: expenses should be recorded in the same period as the revenues they help generate.<\/p>\n
You buy a delivery van for Rs 50,000 that you expect to use for 5 years.<\/p>\n
Each year you record:<\/p>\n
Depreciation Expense \u2192 Rs 10,000 (hits Profit & Loss)<\/p>\n
Accumulated Depreciation \u2192 Rs 10,000 (reduces the van\u2019s value on Balance Sheet)<\/p>\n
After 5 years, the van\u2019s book value is zero (or salvage value), even if it\u2019s still working.<\/p>\n
In short: Depreciation recognizes that fixed assets \u201cwear out\u201d over time and ensures profits are not overstated in early years.<\/p>\n