Course Outline
Join PRO

What are the effects of depreciation?

Author:
Harold Averkamp, CPA, MBA

Definition of Depreciation

Depreciation is the systematic allocation of the cost of a company’s assets used in its business from the balance sheet to the income statement (as an expense) over their estimated useful lives.

Depreciation occurs through an accounting adjusting entry in which the account Depreciation Expense is debited and the contra asset account Accumulated Depreciation is credited.

Effects of Depreciation

The following are some of the effects for a corporation that is depreciating assets:

  • The net income, retained earnings, and stockholders’ equity are reduced with the debit to Depreciation Expense
  • The carrying value of the assets being depreciated and amount of total assets are reduced by the credit to Accumulated Depreciation
  • The depreciation expense reported on the U.S. income tax return (based on the tax regulations) reduces a corporation’s taxable income (and its related income tax payments).
Join PRO to Track Progress

Advance Your Accounting and Bookkeeping Career

Must Watch image

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video
Certificates of Achievement

Earn Our Certificates of Achievement

Certificates of Achievement
  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Accounts Receivable and Bad Debts Expense
  • Depreciation
  • Payroll Accounting
View PRO Plus Features

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,651 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Bookkeeping Study Guide
Managerial Study Guide
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Accounts Receivable and Bad Debts Expense
Certificate - Depreciation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 2,651 Testimonials

Take the Tour Join Pro Upgrade to Pro Plus