Depreciation - Basic Accounting

This note covers Depreciation accouting at a very basic level. Accounting for depreciation can be done in two ways. Actually there are other methods of Accounting for depreciation but the same will be covered in other notes. In this note we have covered depreciation under following two conditions:

1. Asset is not maintained at historical value i.e. the value at which it was purchased.

2. Asset is always maintained at historical value i.e. the value at which it was purchased.

Under situation 1, the asset account shows balance of asset less depreciation till date.

Under situation 2, the asset is always shown at its original cost. The depreciation charged on this asset is accumulated in a seperate account. This account is usually named like 'Accumulated Depreciation on Assets' or 'Provision for Depreciation on Assets'.

Both the above method should and does show same value of assets in hand. The only difference being that in case of situation 2, the user has to dedct the value of Accumulated Depreciation to find out the balance of assets in hand