Why is provision for depreciation not an expense
Provision for depreciation is not considered as an expense but rather as a gradual reduction in the value of an asset over its useful life. Unlike immediate expensing, depreciation allows for the allocation of an asset’s cost over time.
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Depreciation represents the decrease in value of an asset due to factors such as wear and tear or obsolescence. It is a non-cash expense that reflects the asset’s diminishing value over time. The provision for depreciation indicates the estimated portion of the asset’s value that has been consumed during a specific period. It is necessary to record this amount in the income statement to accurately account for the asset’s declining value.
Although the provision for depreciation is not an actual cash outflow, it does reduce the asset’s book value on the balance sheet. This reduction in value has implications for a company’s overall financial position and profitability.
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