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 as follows:

1. An increase in depreciation will be debited in the profit and loss account which reduces net profit.

2. Hence total expenses increase which leads to an excess of debit over credit balance.

The effects of depreciation on Balance Sheet are as follows:

1. The original cost or book value of the concerned asset gets reduced.

2. The overall balance of asset’s column in the balance sheet gets reduced.