Differences Between Provision for Depreciation Account Maintained and Not Maintained

 Differences Between Provision for Depreciation Account Maintained and Not Maintained

#### Provision for Depreciation Account Maintained

1. **Separate Account**: A separate "Provision for Depreciation Account" is maintained.

2. **Asset Account**: The asset account continues to show the asset at its original cost.

3. **Balance Sheet Presentation**: The accumulated depreciation is shown as a deduction from the asset's cost.

4. **Journal Entries**:

   - **Charging Depreciation**:

     - Debit: Depreciation Account

     - Credit: Provision for Depreciation Account

     - **Purpose**: To record depreciation expense for the period.

   - **Transferring to Profit and Loss Account**:

     - Debit: Profit and Loss Account

     - Credit: Depreciation Account

     - **Purpose**: To transfer the depreciation expense to the profit and loss account.

#### Provision for Depreciation Account Not Maintained

1. **Direct Method**: No separate "Provision for Depreciation Account" is opened.

2. **Asset Account**: Depreciation is directly credited to the asset account.

3. **Balance Sheet Presentation**: The asset is shown at its depreciated value (original cost minus accumulated depreciation).

4. **Journal Entry**:

   - **Charging Depreciation**:

     - Debit: Depreciation Expense

     - Credit: Asset Account

     - **Purpose**: To directly reduce the asset's book value by the depreciation expense for the period.

### Key Differences:

- **Account Structure**:

  - **Maintained**: Involves a separate "Provision for Depreciation Account."

  - **Not Maintained**: Directly affects the asset account.

  

- **Presentation in Balance Sheet**:

  - **Maintained**: Shows the asset at original cost with accumulated depreciation as a deduction.

  - **Not Maintained**: Shows the asset at its net book value (depreciated value).

- **Complexity**:

  - **Maintained**: Requires more detailed bookkeeping with additional accounts.

  - **Not Maintained**: Simpler as it directly adjusts the asset value.

Understanding these differences helps in choosing the appropriate method for accurately reflecting asset values and depreciation in financial statements.