Direct and indirect depreciation

Depreciation is an important part of accounting and describes the process by which the values of fixed assets are reduced over a specific period of time. There are two basic methods of depreciation: direct depreciation and indirect depreciation.

Direct depreciation

In the case of direct depreciation, the depreciation is recorded directly on the respective active account. The posting rate for this is, for example: Depreciation/Machinery. The loss in the value of the active account is therefore directly accounted for in expenses. As a result, financial accounting always shows the carrying amount or balance sheet value.

Indirect depreciation

Indirect depreciation involves indirectly posting to a value adjustment account. These accounts are so-called “minus active accounts.” For example, the posting rate is depreciation/depreciation machines. Since the value adjustment account is a minus active account, the amount posted on it is deducted from the machines active account. The major advantage of the indirect method is that the acquisition value of the investment and the accumulated depreciation are always visible.

conclusion

The indirect and direct depreciation methods are essential components of accounting. They are used to correctly represent the loss in the value of assets and to draw a realistic picture of a company's financial position.

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