Doreen Isles Runs Dodo's Dumplings, and She Doesn't Understand the Depreciation

Essay

Doreen Isles runs Dodo's Dumplings, and she doesn't understand the Depreciation Expense she sees in her income statement, and the Accumulated Depreciation she sees in her balance sheet. Doreen says, "There shouldn't be any expense in the income statement; I paid for that equipment two years ago. And, since I paid for it, there shouldn't be a liability like Accumulated Depreciation". Explain the concept of depreciation to Doreen. Be sure to address her statement as part of your explanation.