What is the effect of recording depreciation on an asset?

What is the effect of recording depreciation on an asset?

Step 1: Understand what depreciation is. Depreciation is the process of allocating the cost of an asset over its useful life.
Step 2: Know that every asset has a value when it is purchased. This is called the 'book value'.
Step 3: Realize that as time passes, the asset loses value due to wear and tear or obsolescence.
Step 4: When depreciation is recorded, it means we are officially recognizing that the asset's value has decreased.
Step 5: This decrease in value is reflected on the balance sheet, which is a financial statement that shows what a company owns and owes.
Step 6: As a result, the book value of the asset is reduced, showing a more accurate financial position of the company.

No concepts available.