Asset Lifecycle
Definition
Asset depreciation is the process of accounting for the loss of value of a fixed asset over time.
Depreciation is a non-cash expense.
1. Asset Acquisition (Purchase)
A company records the cost of an asset in its asset account, along with the corresponding liability or cash payment.
2. Acquisition with Taxes
If the asset purchase involves taxes like VAT, GST, etc., the tax is recorded separately.
3. Depreciation Posting
Depreciation is typically posted monthly, quarterly, or annually, based on the company's policies.
Depreciation Expense is charged to the Profit & Loss account (P&L).
Accumulated Depreciation is posted as a contra asset on the balance sheet.
4. Asset Retirement
Asset retirement involves removing an asset from the balance sheet, accounting for remaining depreciation, and clearing its value. It involves selling, scrapping, or transferring the asset without residual value.
