Top 4 Difference Between Depreciation Expense and Accumulated Depreciation
Depreciation is a fundamental component of Accounting. In a corporate setting, it is necessary to calculate depreciation in order to determine the precise value of an asset. Depreciation expenses represent the portion of an asset that has been used up during the current year, while accumulated depreciation is a measure of the overall deterioration that the asset has experienced since it was first acquired.
Depreciation Expense refers to the reduction in the value of an asset over time due to wear and tear, obsolescence, or other factors. It is recorded as an expense on the income statement and reflects the decrease in the asset’s value.
Depreciation expenditure refers to the portion of an asset’s cost that has been assigned and recorded as an expense in the income statement for a specific period. It is an intangible cost that decreases the overall profit of the organization.
In order to accurately reflect the financial position of the firm, the depreciation amount should be deducted from the business’s income for the year on the income statement.
Depreciation expense is calculated in accordance with the matching principle of accounting, which mandates that revenues received in a given accounting period must be matched with the corresponding expenses.
There are four key criteria that have a substantial impact on the calculation of depreciation expenditure. The items are:
Top 4 Differences Between Depreciation Expense and Accumulated Depreciation
| Aspect | Depreciation Expense | Accumulated Depreciation |
|---|---|---|
| Definition | Refers to the reduction in an asset’s value over a specific period due to wear, tear, or obsolescence. | Total amount of depreciation recorded over the asset’s entire lifespan. |
| Accounting Representation | Recorded as an expense on the income statement. | Recorded as a credit on the balance sheet, reducing the asset’s book value. |
| Asset Disposition | Depreciation expense ceases when the asset is sold or disposed of. | Accumulated depreciation is reversed or adjusted upon the sale of the asset. |
| Debit or Credit | Recorded as a debit. | Recorded as a credit. |
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