Business – 10.1 Financial statements – Statement of financial position | e-Consult

Depreciation is a non‑cash expense that reduces the carrying amount of the related non‑current asset. In the statement of financial position the asset is shown at cost less accumulated depreciation; the £20,000 expense increases accumulated depreciation, thereby reducing the net book value of the asset by £20,000. The same £20,000 is also deducted from profit, which reduces retained earnings in the equity section. Thus, depreciation lowers both the net amount of the non‑current asset and the retained‑earnings component of equity.