Accounting equation problems

Depriciation reduces assets on assets side and capital on liability side.My question is why does it affect capital when charging dep. is a liability so it should affect liability on liability side...So confused need your help..please And thanks in advance
Replies (4)

It affects capital Indirectly because, depreciation is a charge to P&L a/c , as a result profit is affected because of this expense. hence depriciation affects both asset and liability side.

another way of looking at it is - depreciation (accumulated) is shown as a contra-asset, which means it reduces asset. Depreciation is also an expense, hence reduces profits, therefore capital. 

First of all depriciation is not a liability. Its a charge on the assets. Thus if you show assets on gross block basis, Depreciation A/C is debited and Accumulated Depreciation is credited. For the purpose of presentation, it is reduced from the gross block...

The idea of depreciation accumulated is in a sense a 'liability' of the future outflow of resources due to complete wear and tear of the asset and the need to replace it in the future. It's not a legal liability but a future outflow of resources due to the need to acquire new assets and replace existing ones. Some companies create an investment equal to the accumulated depreciation which can be earmarked for asset acquisition. It is suprising why accountants merely look at it as a charge against assets but don't question why a accumulated depreciation is carried and shown as a deduction from assets. 

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
Featured 29 October 2026
Accounts Executive

Synergy Keystone

Chennai

B.Com

View Details
Company
14 October 2026
GST & TDS ASSISTANT

AGGARWAL SANJAY & ASSOCIATES

New Delhi

B.Com

View Details
Company
08 October 2026
Accounts and Tax Associate

POOJA R TELI & CO

Pune

CA Inter

View Details
Company
07 October 2026
Senior Account Manager

Amplio Invest

Mumbai

M.Com

View Details
Company
02 November 2026
Audit Executive

SRJP & Co LLP

Kochi

CA Inter

View Details
Company
ARTICLESHIP 25 October 2026
Article Intern (CA Articleship)

Arpan Bohra & Co

Hyderabad

CA Inter

View Details
Company
12 October 2026
AUDIT , ACCOUNTS AND TAXATION

KDSS

New Delhi

B.Com

View Details
Company
19 October 2026
Accountants/Articles (Freshers/Experienced)

ADY & CO.

New Delhi

Graduate (Any)

View Details