What are the effects of depreciation on profit and loss account and balance sheet?
1 Answer
The effects of depreciation on Profit and Loss Account are as follows:
- An increase in depreciation will be debited in the profit and loss account which reduces net profit.
- Hence total expenses increase which leads to an excess of debit over credit balance.
The effects of depreciation on the Balance Sheet are as follows:
- The original cost or book value of the concerned asset gets reduced.
- The overall balance of the asset’s column in the balance sheet gets reduced.
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