Is Depreciation a Direct or Indirect Expense

DEPRECIATION IS A DIRECT EXPENSE OR INDIRECT EXPENSE

WHY DEPRECIATION DEBITED TO P&L A/C
WHY NOT DEBITED TO TRADING A/C

Prakash from India

Prakash, any expense which is connected directly to the production or purchase, will be the direct expense. Any expense or cost which is not connected directly with the production or purchase will be the part of indirect expense. When we add direct material, direct labor cost and direct expense cost, it will be the prime cost. Except this, all will be the indirect expense or cost which will be calculated for finding total cost. In case of depreciation, we see whether depreciation incurred directly with the production or for purchase of goods or not.

1. Fixed Assets which are Used in Plant or Manufacturing

We will include the depreciation of all fixed assets which are used plant in which production is doing in direct expense because this is the part of direct cost.

2. Fixed Asset which are used for Administration and Sales

All fixed assets which are used for administration and sales will be different from above fixed assets. Its depreciation will be the part of indirect expense. For example, we have used Track for delivery the goods to the customer. So, the depreciation of truck is the part of indirect expense because truck is using for sales and distribution not purchase and production. If it is used both sales and purchase. We can divide depreciation both into direct and indirect expense on the basis of time.

All depreciation which is the part of direct expense will be included in the trading account. All the depreciation which is the part of indirect expense will be included in the profit and loss account.