What is The Purpose of Depreciation

The Main purpose or aim of Depreciation is to allocate the cost of Depreciable Assets over its Useful Life and is done by matching cost of the productive asset with the revenues earned by using it during the accounting period according to Matching Principle Gaap.

For Example, furniture are depreciated over a period of five years as it has useful life of five years during which it is useful for the business before it will become obsolete. So we record the following Entry where Depreciation Expense on Furniture is recorded to match the cost of furniture with revenues reported on Income Statement and then Contra Account (Accumulated Deprecation - Furniture) on balance sheet to be deducted from the cost of Furniture in order to allocate the cost of the furniture over its useful life of five years.

               Depreciation Expense - Furniture a/c  XXX

                                                                        Accumulated Depreciation - Furniture a/c  XXX

                                              (Depreciation On Furniture Recorded for the Year)

Depreciation on Furniture is recorded on Income Statement and Accumulated Depreciation on furniture is deducted from cost of furniture on balance sheet.

So, the purpose of recording depreciation on productive assets is to charge the cost of these assets to expense during the accounting period still the assets remain useful for the business.