Why do we need to depreciate fixed assets? (Explained)

Fixed assets are the kind of capital expenditures that higher costs to most of the organizations. Cash outflow from the entity is big and the way that those fixed assets generate income to the entity is longer than one.

This is the main reason why accounting policy required fixed assets to be depreciate and the depreciation expenses are charged systematically.

Accounting standard try to match the income that those assets could possibly generate and the expenses that the entity spend on fixed assets.

If the cost of assets are charged in the first year that entity spend on assets, then income and expenses relate to those assets are not matching.

For example, if all of the cost of assets are charged in the first year, then income statement in the first year will incur large cost and the bottom line will adversely affect significantly.

Second year, assets will generate income yet the cost of assets is zero. This does not make income statement look fair view.

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