Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

13.4A Why is depreciation an Expense?

419 views

Published on

Unit 3 VCE Accounting.

Published in: Education
  • Be the first to comment

13.4A Why is depreciation an Expense?

  1. 1. 13.4a WHY IS DEPRECIATION AN EXPENSE?
  2. 2. © Michael Allison. Author’s permission required for external use. 13.4a WHY IS DEPRECIATION AN EXPENSE? Depreciation represents an Expense for the firm which lowers profit… Definition: Expenses are: • Outflows of economic benefits or reductions in inflows of economic benefits • That will either: •  Assets • Liabilities • With the ultimate effect of: •  Owner’s Equity
  3. 3. © Michael Allison. Author’s permission required for external use. 13.4a WHY IS DEPRECIATION AN EXPENSE? Example: depreciation of $2,000 for a car was charged this period. Debit Credit Negative Asset   Accumulated Depreciation [-A]Accumulated Depreciation [-A] 31/12 Depn– Car 2000 Debit Credit Negative Asset   Depreciation [E] Debit Credit Expenses   Depreciation [E] 31/12 Acc. Depn – Car 2000 Debit Credit Expenses   Trait #1 Trait #2 Trait #3 Depreciation • There is a consumption (usage) of economic benefits • The asset has been used (driven) this period  Assets (Acc Dep will  the Car Asset)  Owner’s Equity
  4. 4. © Michael Allison. Author’s permission required for external use. Depreciation represents an Expense for the firm which lowers profit… 13.4a WHY IS DEPRECIATION AN EXPENSE? Wages paid Depreciation Characteristic #1 • There is a consumption (usage) of economic benefits • The labour of employees has been used during the period • There is a consumption (usage) of economic benefits • The asset has been used (driven) this period Characteristic #2  Assets (the Cash Asset)  Assets (Acc Dep will  the Car Asset) Characteristic #3  Owner’s Equity  Owner’s Equity
  5. 5. © Michael Allison. Author’s permission required for external use. TASK In-class Homework SQ1 X SQ2 X

×