Depreciation
What is depreciation?
Depreciation shares the cost of a non-current asset over the years the business uses it.
Each year's share is an expense. The year-end journal is: debit Depreciation charge, credit Accumulated depreciation.
No money leaves the bank when it is charged, and no cash is set aside.
Example
A coffee machine cost £5,000.00 and is depreciated by £900.00 a year. After 3 years the accumulated depreciation is £2,700.00 and the carrying amount is £2,300.00.
Why it matters
An asset is used for years, so its cost is not all an expense of the year it was bought. The carrying amount is the cost not yet charged. It is not an estimate of what the asset would sell for.
Practise it
Module, 5 rooms, PremiumDepreciation
See the first roomWhy assets are depreciated
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].