What is the need of depreciation account?

U bought office furniture worth 5 lakh. After 5 years u need to replace it all, it's almost broken or not appropriate. Now u need 5 lakh again. So instead of getting 5 lakh at once in 6th year, u save one lakh each year saying, I have used furniture worth lakh in a year, the way u use a pencil, it keeps ending. Benefit, u hv balence to buy furniture. U book depreciation gets u tax benefits, it's an expense. Organisation is full of assets, all with limited lives so dep is imp. Hope it helps. read less

Introduction to Depreciation Buildings, machinery, equipment, furniture, fixtures, computers, outdoor lighting, parking lots, cars, and trucks are examples of assets that will last for more than one year, but will not last indefinitely. During each accounting period (year, quarter, month, etc.) a portion of the cost of these assets is being used up. The portion being used up is reported as Depreciation Expense on the income statement. In effect depreciation is the transfer of a portion of the asset's cost from the balance sheet to the income statement during each year of the asset's life. The calculation and reporting of depreciation is based upon two accounting principles: Cost principle. This principle requires that the Depreciation Expense reported on the income statement, and the asset amount that is reported on the balance sheet, should be based on the historical (original) cost of the asset. (The amounts should not be based on the cost to replace the asset, or on the current market value of the asset, etc.) Matching principle. This principle requires that the asset's cost be allocated to Depreciation Expense over the life of the asset. In effect the cost of the asset is divided up with some of the cost being reported on each of the income statements issued during the life of the asset. By assigning a portion of the asset's cost to various income statements, the accountant is matching a portion of the asset's cost with each period in which the asset is used. Hopefully this also means that the asset's cost is being matched with the revenues earned by using the asset. There are several depreciation methods allowed for achieving the matching principle. The depreciation methods can be grouped into two categories: straight-line depreciation and accelerated depreciation. read less