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How is Depreciation Shown on the Financial Statements of a Company?

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Question: How is Depreciation Shown on the Financial Statements of a Company?

Depreciation represents the decrease in the value of an asset over time, and depreciation is expressed in both the balance sheet and income statement of a business:

Answer:

Depreciation on the Balance Sheet
The balance sheet of a business shows the value of the assets of the business against the value of the liabilities and owner's equity or retained earnings. Depreciation is included in the asset side of the balance sheet to show the decrease in value of capital assets at one point in time. It is expressed as "accumulated depreciation," or the total loss in value from the acquisition of the asset to the present time, leaving the book value as the remaining value of the asset. On the balance sheet, it looks like this:

  • Cost of assets
  • Less Accumulated Depreciation
  • Equals Book Value of Assets
Here is an example that could be found on a balance sheet, as of December 31, 2009:
  • Office Equipment $129,000
  • Less Accumulated Depreciation- Office Equipment $100,000
  • Book Value - Office Equipment $29,000
Showing depreciation in this way allows the reader to see the full value of the assets and the decrease in value, with the resulting book value.

Depreciation on the Income Statement
On the income statement, the amount of depreciation expensed or taken during time period in question is shown along with other expenses of the business. The expense for the time (usually a year) is added to previous depreciation expense to equal accumulated depreciation.

Using the example above, the depreciation expense for 2010 on Office Equipment might be $12,000, which would show as an expense on the Income Statement. Thus, at the end of 2010, Office Equipment might look like this on the Balance Sheet:

  • Office Equipment $129,000
  • Less Accumulated Depreciation- Office Equipment $112,000
  • Book Value - Office Equipment $17,000
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