WHAT IS THE DIFFERENCE BETWEEN PROVISION FOR DEPRECIATION AND ACCUMULATED DEPRECIATION

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Provision for depreciation is the depreciation amount recorded for the current period for an asset.

Accumulated depreciation is the total balance of depreciation amounts recorded for all previous accounting periods in which an asset has been used.

The differences between provision for depreciation and accumulated depreciation are:

1. Provision for depreciation is the current depreciation amount for the current period whereas accumulated depreciation is the total balance of depreciation expenses that have already been charged to an asset.

2. Provision for depreciation is an income statement account because it is usually recorded in the income statement. 

Remember that provision for depreciation relates to the current period.

On the other hand, accumulated depreciation is a contra-account because it is used to reduce the balance of an asset.

As such, accumulated depreciation is reported on the asset section of the balance sheet.

3. While accumulated depreciation combines all prior depreciation charges, provision for depreciation is charged at the end of the accounting year.

4. Accumulated depreciation has a normal credit balance as opposed to provision for depreciation, which has a normal debit balance.

To be clear, accumulated depreciation refers to depreciation that has already been charged against an asset, whereas provision for depreciation refers to depreciation that has been planned for the current year.

For example, a 5 year equipment worth €10,000, may have already had an accumulated depreciation of €5,000.

The year's depreciation using straight line depreciation will be €1,000. 

So, the €1,000 will be provision for depreciation for this year, and at the end of the year the accumulated depreciation will be €5,000+€1,000 or €6,000.

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