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Depreciation refers to a loss in the value of an asset owing to wear and tear, efflux of time, obsolescence etc. It refers to that portion of the cost of fixed asset which has been used in the business for the purpose of earning profits during the current accounting period.

Impact on financial statements

  • In Profit and Loss account, it is shown as an expense as per matching concept
  • In Balance Sheet, it will be reduced from the value of assets

The following journal entry is passed




Debit (₹)

Credit (₹)


Depreciation A/c             Dr.




To Respective asset A/c

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