Unit 3 VCE Accounting.

1. 13.4a
WHY IS DEPRECIATION
AN EXPENSE?

2. © Michael Allison. Author’s permission required for external use.
13.4a WHY IS DEPRECIATION AN
EXPENSE?
Depreciation represents an Expense for the firm which lowers
profit…
Definition:
Expenses are:
• Outflows of economic benefits or reductions in inflows of economic
benefits
• That will either:
•  Assets
• Liabilities
• With the ultimate effect of:
•  Owner’s Equity

3. © Michael Allison. Author’s permission required for external use.
13.4a WHY IS DEPRECIATION AN
EXPENSE?
Example: depreciation of $2,000 for a car was charged this period.
Debit Credit
Negative Asset  
Accumulated Depreciation [-A]Accumulated Depreciation [-A]
31/12 Depn– Car 2000
Debit Credit
Negative Asset  
Depreciation [E]
Debit Credit
Expenses  
Depreciation [E]
31/12 Acc. Depn – Car 2000
Debit Credit
Expenses   Trait
#1
Trait
#2
Trait
#3
Depreciation
• There is a consumption
(usage) of economic
benefits
• The asset has been used
(driven) this period
 Assets
(Acc Dep will  the Car Asset)
 Owner’s Equity

4. © Michael Allison. Author’s permission required for external use.
Depreciation represents an Expense for the firm which lowers
profit…
13.4a WHY IS DEPRECIATION AN
EXPENSE?
Wages paid Depreciation
Characteristic #1
• There is a consumption
(usage) of economic benefits
• The labour of employees has
been used during the period
• There is a consumption
(usage) of economic benefits
• The asset has been used
(driven) this period
Characteristic #2
 Assets
(the Cash Asset)
 Assets
(Acc Dep will  the Car Asset)
Characteristic #3  Owner’s Equity  Owner’s Equity

5. © Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
SQ1 X
SQ2 X