Depreciation is one of those costs because assets that wear down eventually need to be replaced.
Depreciation accounting helps you to figure out how much value your assets lost during the respective year.
That depreciation amount needs to be listed on your income statement, and subtracted from your revenue when calculating profit.
The reason for using depreciation is to gradually reduce the recorded cost of a fixed asset to recognize a portion of the asset’s expense at the same time that the company records the revenue that was generated by the fixed asset.
Final Answer:
Depreciation on fixed assets is charged to ascertain the correct profit or loss on its sale, to show assets at correct value in the balance sheet and to provide for its replacement.