The purpose of depreciation

It is important to understand the purpose of depreciation. Depreciation is an application of the accruals concept or matching concept.  When a non-current asset is purchased the cost is: 

1. taken to the non-current asset account at cost and 
2.  shown in the statement of financial position. 

The cost is capitalised. However this asset is used within the business in order to  earn profits. Therefore some element of its original cost must be charged to the statement of comprehensive income (‘charged to profit and loss’) each period in order to match the ‘consumption’ of the cost or value of the assets with the income that the asset is generating.   Depreciation is the element of the cost of the non-current asset that is charged to the statement of comprehensive income each period.   There are several ways of calculating the depreciation charge for the year.

Depreciation

Depreciation is an expense that matches the cost of a non-current asset to the  benefit earned from its ownership. It is calculated so that a business recognises the full cost associated with a non-current asset over the entire period that the asset is used. In effect, the cost of the asset is transferred to the statement of comprehensive income over the life of the asset. This may be several years.  This section explains depreciation as an expense calculated at the end of the accounting period as an end-of-year adjustment. This might be the case for small businesses but larger businesses will often use software that is able to recognise depreciation on a monthly basis.

The cash book & Types

The cash book
The cash book is often a book of prime entry. It is used to record receipts and payments of cash into the business bank account.  The cash book has two sides, a side for receipts of money and a side for
payments. Both sides have a number of columns so that cash receipts and payments can be analysed to make it easier to construct journals for double entry. A business can analyse the amounts received and paid in any way it chooses.

Types of cash book 
The cashbook records all the transactions that involve receipts and payments of cash and deposits in and withdrawals from the bank in a chronological order. The debit side represents the receipts side and the credit side represents the payments side.
There are four basic types of a cash book.

1.  Single column cash book 
2.  Two column cash book
3.  Triple column cash book
4.  Petty cash book