Accounting Concept Of Depreciation

A firm requires fixed assets such as plant and machinery,building and furniture etc for its necessity which is purchased and it is recorded in the books of account at its original cost.A fixed asset is used to earn revenue for a number of accounting period in future with the same cost until the asset is sold or discarded.

Therefore,it is necessary that a part of the original cost of the fixed asset will be treated as an expense in each accounting year.A part of the original cost which will be treated as an expense is known as depreciation in accounting.Depreciation is an important expense for a firm which must be charged in the statement of profit and loss account before getting the net profit for that particular year.

The cost incurred of a fixed asset which is in the form of depreciation should be matched against the revenues which is earned from the use of an asset.In accounting, depreciation means distribution of the cost of a fixed asset for the years of its usage and charge the depreciation in statement of profit and loss account.Depreciation has no link with the market value of an asset.

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