Accounting: Depreciation

depreciation

allocation of the cost of a non-current asset over its useful life.

what does depreciation represent?

the revenue earning capacity of the nca.

straight line depreciation

historical cost-residual value/life
OR
historical cost x %charge

reducing balance depreciation

(historical cost-accumulated depreciation) x %charge

how is depreciation recorded in the general journal?

depreciation - debit (increased expenses)
accumulated depreciation - credit (decreased -nca)

how is depreciation recorded in the balance sheet?

nca (cost of asset)
less accumulated depreciation (added expense)
= carrying value (amount not depreciated)

what qualitative characteristic does depreciation not follow?

verifiability

how does depreciation effect relevance (characteristic)?

depreciation decreases profits and assets, hence has an effect on business decisions.

how does depreciation effect accrual basis (assumption)?

the revenue earned by the nca should match the use of the nca.