Fixed assets and depreciation

How this works

An asset enters the balance sheet at full cost on the day it is bought — that is not an expense. Every month part of its value wears off, and that part is the expense: cost × rate ÷ 12.

Accumulated depreciation does not reduce the asset account itself; it builds up on a contra account. That way both what you paid and what has worn off stay visible.

Depreciation starts the month after the purchase — in the month of purchase the asset was not yet working. When the book value reaches zero the asset still exists and works, there is simply nothing left to depreciate.