What is book depreciation?

During the accounting exercises of a company it is necessary to estimate how much value the non-current assets or fixed. This process is known as accounting amortization, since it allows calculating the depreciation or valuation of a company's assets and being able to establish their real value over time. Among the assets to be amortize In accounting we find from tangible fixed assets to intangible or intangible fixed assets, including real estate investments.

How the book depreciation is done

It is important that the accounting depreciation is recorded, so it must be reflected in the accounting documents of the company. For this it will be necessary to follow the following steps:

  1. Allocate the depreciation of the asset as a loss of the accounting year
  2. Carry out a negative account in the assets of the balance sheet in which the amount of balance should increase as the asset loses value throughout the year. Thus, each fixed asset will have both a positive account to collect the value of the asset when it is purchased or obtained and another negative account in which it is reflected how much less it is worth as time goes by.

This way of collecting book depreciation is known as the indirect method, although there is also a direct method to control book depreciation. In this case, the loss of value with respect to its initial appraisal is scoring in the account asset accounting.

The importance of book depreciation resides in the fact that, since it is considered an expense, it can be deducted in the payment of taxes. To this must be added, that the accounting amortization allows to have a more real vision of the company, both economically and financially, as well as offers the opportunity to create a reserve fund to be able to renew the asset when it loses its useful life, such as machinery.

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