What are the purpose of depreciation?

Depreciation is a business expense.It should be charged to revenue irrespective of whether there is profit or loss. The object of charging depreciation are. To arrive at the true working result,net profit or net loss. To show the asset at its proper value, that is at cost less depreciation loss. To retain,out of profits, funds for the replacement of the asset at the end of its working life. In order to comply the law of companies act. You have to

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Difference between Depreciation,Depletion and Amortisation

These terms are often used as synonymously of . But each of them has its special meaning and significance. Depreciation: The term depreciation is used when decrease in the value of a physical asset like plant and machinery,furniture or building is to be recorded. Depletion: The term depletion is applied to the process of measuring and recording the exhaustion of natural resources such as mineral mines,oil wells,sand quarries ,etc. Amortization: The term amortisation is applied to the process of writing-down

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What are the causes of depreciation?

Depreciation is caused by one or more of the following factors:- Wear and tear: Assets get worn or torn out on account of constant use as is the case with plant and machinery or Furniture.”Wear and tear” signifies the shrinkage of value arising from use. Exhaustion or Depletion : An asset may get exhausted through constant working,.For example, a mine or an oil well gets exhausted through continuous extraction of minerals or oil. Accidents: When an asset meets with any

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What is depreciation? Accounting entries of depreciation

Definition: Generally Speaking depreciation is the gradual decrease in the value of an asset due to any cause.It has been defined as “The permanent and continuing diminution in the quality,quantity or value of an asset“. But the term depreciation is commonly used in relation to fixed assets only.It is “that part of the cost of a fixed asset to its owner which is not recoverable when the asset is finally put out of use by him”.It is a business expense

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Relation between journal and ledger

As per Accounting definition, Accounting is the art of recording,classifying and summarizing of business events in terms of money. The primary function of accounting is the recording of business transactions. The Most important part of accounting is the recording which involves journal and ledger. Journal and ledger are the two books of records. Transactions are initially recorded in the journal books. The recording in journal involves analyzing transactions and find out the accounts affected by transaction,then decide which account to be

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compound journal entry example

An entry in a journal which contains more than one debit and once credit are necessary ,the entry is called compound journal entry. Or in other words an entry which affects more than two accounts is called compound journal entry. A compound journal entry may have one debits and two or more credits or one credit and two or more debits. Instead of creating so many simple journal entry, you can create one compound journal entry for multiple transactions. Which

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