Question

What are the effects of depreciation on profit and loss account and balance sheet?

Answer 1

The effects of depreciation on Profit and Loss Account are given below.

1. Depreciation increases the debit side of profit and loss account and hence reduces net profit.

2. Depreciation increases the total expenses, leading to an excess of debit over credit balance.

The effects of depreciation on Balance Sheet are given below.

1. It reduces the original cost or book value of the concerned asset.

2. It reduces the overall balance of asset’s column in the balance sheet.