What is the need of depreciation account?

The matching principle of accounting states that expenditures paid during a given accounting year should be matched with revenue or income produced during the same accounting year. As a result, when the fixed asset’s useful life has expired, it is essential to distribute the cost of the fixed asset less scrap or realizable value, and this process is known as depreciation accounting.
As a result, the depreciation account is required for primarily two purposes:
To determine appropriate earnings and to reflect the value of a fixed asset at its unexploited potential.

Depreciation is a charge to profit and loss a/c for the fall in value of an assets during each year of its use.

Depreciation represents that part of the cost of the fixed assets to its owner which is not recoverable when the assets are finally put out of use by him’

  • Depreciation is a part of the operating cost.

  • It is reduction in the value of assets.

  • The decrease in the value of an asset is due to its use, caused by wear and tear, or by other reason.

  • The decrease in the value of assets is gradual and continuous.