Allowance for depreciation

 

Depreciation provision, depreciation or depreciation accumulator, which is a fund or collectible. The value of the annual depreciation of the fixed asset and the provision is collected, whether the provision for depreciation or something else, is an application of the principle of prudence and caution, which is the facility that is required to face any losses that may occur in the future. It is depreciation of the fixed asset over the course of its productive life.

Depreciation is treated in two ways:

The first way

It is treated as an expense and closed in the depreciation provision account and charged to the income statement, and the value of the asset is placed at cost in the budget minus the depreciation provision

Where the asset appears in the balance sheet as an example

Fixed assets

Cars (at cost)

- Car loss provision

= Auto current value

According to the accounting standards, the fixed asset is placed in the balance sheet at cost minus the depreciation allowance and not at the present value.

The second way

It is not setting the depreciation allowance on the debtor right side of the budget minus the cost of the asset, but it is placed on the credit left side within the current liabilities and the two methods are correct and some prefer this method to apply the principle of disclosure in accounting.

The registration for depreciation is at the end of the year

From / fixed asset depreciation expense ((income statement

To  / Provision for depreciation of a fixed asset (budget)

Depreciation expense is closed in the income statement and the entry is made

From / profits and losses

To / fixed asset depreciation expense