What is depreciation for?
Due to physical and moral depreciation, the cost of basic resources is gradually decreasing. In this regard, the accounting system has introduced a systematic distribution of the amortized amount of all major fixed assets over the life of the asset. Depreciation becomes the value of fixed assets.
Depreciation is the systematic transfer of the value of fixed assets as they wear out. So why do you need depreciation? There are several opinions on this subject. Some experts believe that using the depreciation process, you can create cash flows, which will subsequently be used to restore fixed assets. Other financiers consider depreciation as a way to gradually distribute large expenses over several periods on an accrual basis. Every month, every employee gradually reduces the cost of fixed assets: appliances, machines, equipment. Moreover, this happens until the time when the value of the item or product reaches a value of zero. And if the write-off of the subject is carried out in one month, then in the reporting period a huge loss for the company can result. While the product is working, the company is in profit, and as soon as it is broken, out of order, worn out, the company suffers only losses. In addition, if we consider depreciation from the point of view of shareholders, then it is better for them to deceive themselves a little during, for example, a year, than to see a stunning truth about losses in one month. And there are situations when looking at the report, which shows the entire amount of the worn-out item, they will not be able to understand why the company worked stably all the time, and in this reporting period it received a huge loss. Some financial workers, through depreciation, may help the company pay a lower income tax. This is due to the fact that the depreciation amount does not always coincide with the actual physical wear of the product. If this amount is greater, then the income tax will be much less. Do not forget that depreciation also requires an accounting standard. And using this procedure, you can get a lot of benefits for the enterprise.
