An answer about the difference between depreciation expense account and depreciation allowance account in accounting, and how they affect financial reports.
The Answer:
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Depreciation Expense Account:
- It is an account within expenses that appears in the income statement (profit and loss statement).
- It reflects the annual wear and tear of fixed assets as a cost that reduces the company’s profits.
- It affects profits in financial reports.
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Depreciation Allowance Account:
- It is recorded in the balance sheet as a deduction from the asset’s value.
- It shows the remaining value of the asset after deducting accumulated depreciation.
- It affects the value of assets in the balance sheet.
In summary:
- The expense affects profits.
- The allowance affects the value of assets in the balance sheet.
Additional Notes:
- Depreciation allowance accumulates over the life of the asset, while depreciation expense is recorded periodically.
