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Matching of Costs and Revenue

The basis of the acquisition of fixed assets in business operations is that these are used in the earning of revenue. Every asset is bound to go through some wear and tear, and lose its value, once it is put to use in business.

Therefore, consumption of the value of an asset is as much as any other expense incurred in the normal course of business like salary, carriage, postage and stationary, etc.

It is a charge against the revenue of the corresponding period and must be deducted before arriving at net profit according to 'Generally Accepted Accounting Principles'.

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