Why is depreciation on the income statement different from the depreciation on the balance sheet?
Depreciation on the income statement is the amount of depreciation expense that is appropriate for the period of time indicated in the heading of the income statement. The depreciation reported on the balance sheet is the accumulated or the cumulative total amount of depreciation that has been reported as expense on the income statement from the time the assets were acquired until the date of the balance sheet.
Let’s illustrate the difference with an example. A company has only one depreciable asset that was acquired three years ago at a cost of $120,000. The asset is expected to have a useful life of 10 years and no salvage value. The company uses straight-line depreciation on its monthly financial statements. In the asset’s 36th month of service, the monthly income statement will report depreciation expense of $1,000. On the balance sheet dated as of the last day of the 36th month, accumulated depreciation will be reported as $36,000. In the 37th month, the income statement will report $1,000 of depreciation expense. At the end of the 37th month, the balance sheet will report accumulated depreciation of $37,000.
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7 Responses to “Why is depreciation on the income statement different from the depreciation on the balance sheet?”
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1. Understanding the concept of deferred taxes and the distinction between permanent and temporary differences
2. Compute the amount of deferred tax liabilitiess and assets.
3. Explain the provisions of tax loss carrybacks and carryforwards, and be able to account for these provisions.
4. Schedule future tax rates, and determine the effect on deferred tax assets and liabilities
5.Determine appropriate financial statment presentation and disclosure associated with deferred tax assets and liabilities
6. Comply with income tax disclosure requirments associated with the statment of cash flows
7. Describe how, with respect to deferred income taxes, international accounting standards have converged toward the U.S. Treatment
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as you can, really having a hard time understanding.
Why all the world are using this principle
(matching of accounting)