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Question

Depreciation is treated as a business expense and is debited to ________.

A
Trading account
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B
Profit and loss account
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C
Both of the above
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D
None of the Above
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Solution

The correct option is C Profit and loss account
Depreciation is the decline in the value of assets on account of wear and tear and passage of time. It is treated as a business expense and is debited to profit and loss account. This, in effect, amounts to writing-off a portion of the cost of an asset which has been used in the business for the purpose of earning profits. The entry for providing depreciation is:
Depreciation A/c Dr.
To Concerned Asset A/c
In the balance sheet, the asset will be shown at cost minus the amount of depreciation.

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