DEPRECIATION ACCOUNTING

The depreciation accounting is mainly based on the concept of income. The concept of income is matching of revenues with expenses. The goods purchased are frequently matched through immediate sale or within a year. The crux of the concept of income is that the expenses are to be matched against the revenues. The ultimate aim of matching is done in order to determine the volume of profit or loss of the transaction. If the assets are nothing but long term assets procured by the enterprise should be matched against  the revenues of them. The matching of expenditure of the assets incurred by the firm at the time of purchase against the revenues is the hard core task of the firm. Why it is being considered as a cumbersome task in matching ? The benefits/revenues of the fixed assets expected to accrue for many number of years but not within a year. The initial investment on the assets at the time of purchase should be matched against the revenue pattern of the same year after year in order to find out the profitability of the long term investment. To have an effective matching against the revenues on every year, the amount of purchase has to be stretched. The stretching of expenses into many years is known as depreciation. It is a matching in between the fixed charge expense against the current year’s revenue.
The remaining /left which is unrecovered portion should be carried forward to forthcoming years in order to match against the respective revenues What is the ultimate of the purpose of the depreciation? The ultimate purpose of the depreciation is to replace the fixed assets only at the moment of becoming useless through the current revenues. According to Dickens, 
“depreciation is the permanent and continuous diminution in the quality /quantity / value of the asset.” In simple words to understand the terminology depreciation is the permanent decrease in the value of the fixed assets.

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