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What is the Balance of Trade?

The balance of trade (BOT) is a measurement of a country’s exports compared to its imports. For example, the exports and imports of the US stand at $258 Billion and $331.3 Billion, respectively, as of November 2023. The country is in a trade deficit because the trade balance is negative (-$73.3). Therefore, the US has a $73.3 billion deficit in it. 

It can measure a country’s economic health and relations with other countries. A positive BOT shows a country’s trade surplus, while a negative BOT indicates a deficit. It means a country has a trade deficit when it imports more than it exports and vice versa. It is also known as net exports.

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Key Highlights

A BOT is an economic metric that measures the gap in a nation’s importing and exporting values. 

It is of three types: favorable, unfavorable, and equilibrium

To calculate this value, economists usually subtract imports from exports

It is a crucial economic indicator of a country’s trading practices and helps analyze its global standing

While the BOT is the import-export difference, the balance of payment is the transactional record of a nation’s capital inflow and outflow.

Real World Examples Example #1:

The September report shows that the United Kingdom has a total trade deficit of $3.13 billion for 2023. It fell from $5.53 billion in 2023. The primary reason for this downfall is the decrease in oil prices which reduces the value of imports.

Example #2:

India’s trade balance shows a deficit of $25.7 billion as of September 2023. It is a recovery from $27.8 billion, a record low it saw in July 2023.

Example #3: Types Favorable

It indicates that exports are higher than imports, resulting in a net gain for the country

Countries with a favorable trade balance can often reduce shipping and import costs due to their strong trading relationships with other countries. 


It means that imports are more than exports, resulting in a net loss for the country.

A weak currency is one of the common reasons for unfavorable BOT, as it makes exports expensive while imports become cheaper. 


It is when both exports and imports are equal in value

It can be either because both trading countries are satisfied with the trade or are significantly damaged by the imbalance. 

How to Calculate Balance of Trade?

To calculate the BOT, use the following formula,

Balance of trade = Value of Export – Value of Import

Gather the necessary data regarding the nation’s exports and imports value for the specific period

Calculate the difference between both values by subtracting the value of imports from the exports

A positive result indicates a trade surplus, while a negative number indicates a trade deficit

For example, let’s say that Country A has exports totaling $50 billion and imports totaling $40 billion. The trade balance would be $50 billion less $40 billion, which is $10 billion. It indicates that Country A has a trade surplus of $10 billion.

Balance of Trade vs. Balance of Payment

Balance Of Trade

Balance Of Payment


It is the difference in value between the goods/services it buys and sells during a specific period.

It is a record of all of its international economic deals and transactions


It is generally the net exports, i.e., exports minus imports

It is a sum of a country’s current, capital, and financial account along with its trade balance


The overall impact can be positive, negative, or zero 

The result will always be zero

Major difference

It does not consider any international capital transfers.

It includes all capital transfers for its calculation.


It includes goods and services, presenting a more accurate picture of a country’s overall economic health and stability.

It also affects a nation’s currency values, inflation, and interest rates 

It provides an understanding of a country’s competitiveness in global markets

It can help evaluate the trade relationship among various economies.

Final Thoughts

The BOT is an essential factor to consider when looking at the health of a country’s economy. It is a necessary factor in a country’s economic stability and prosperity. Therefore, nations must carefully manage their imports and exports to ensure a healthy trade balance.

Frequently Asked Questions(FAQs)

Answer: All variables that impact international commerce affect a country’s trade balance. A few significant causes are trade policies, currency reserves, inflation, exchange rates, and aggregate demand & supply.

Conversely, a country with an unfavorable trade balance will see its currency depreciate, making its imports more expensive and slowing economic growth.

Answer: Several factors can lead to changes in the trade balance. These factors include goods/services, exchange rates, and government policies. In addition, changes in global demand for different economic factors can affect imports and exports. 

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Aggregate In Excel (Formula, Examples)

AGGREGATE in Excel (Table of Contents)

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Excel functions, formula, charts, formatting creating excel dashboard & others


Aggregate function comprises multiple mathematical functions such as average, sum, max, min, mean, etc., along with the conditions which are customized for each of these sub-functions available under aggregate function. We can even ignore the different cells or rows, such as a blank row, error value, etc., and get the desired output. We have 19 sub-functions available in the Aggregate function with different Options.


“Returns the AGGREGATE in a database of values or list”

It means it performs several calculations (19 Excel statistical functions)

AGGREGATE Formula in Excel

An AGGREGATE function has two types of formula

It can be noticed when you type the AGGREGATE function in an Excel cell

1) AGGREGATE in Reference form

2) AGGREGATE in Array Formula

Function_num: It is a number; it can be from 1 to 19. It depends on which specific function you want to use in the below-mentioned list

Here each number represents a function; it is a compulsory argument

1 to 13 are Reference forms, and 14 to 19 are array form




4: MAX

5: MIN




9: SUM

10: VAR.S

11: VAR.P









Options: is the number 0 to 7 that specifies which values to ignore for the aggregate function Note: If the options parameter is omitted, by default, options are set to 0

0: Ignore nested SUBTOTAL and AGGREGATE functions

1: Ignore nested SUBTOTAL, AGGREGATE functions, and hidden rows

2: Ignore nested SUBTOTAL, AGGREGATE functions, and error values

3: Ignore nested SUBTOTAL, AGGREGATE functions, hidden rows & error values

4: Ignore nothing

6: Ignore error values

7: Ignore hidden rows and error values

ref1, ref2, ref[3]: It is the first numeric argument for the function when using the REFERENCE syntax. It is values or numeric values on which we want to perform the computation. You must provide at least two arguments, and you can include additional arguments if needed; or the second reference, Numeric arguments should be between 2 to 253 for which you want the aggregate value

Array: An array refers to a range of cells when using the ARRAY syntax

[k]: The last 6 functions (under 1 to 19 function list): k value as a fourth argument

It is an optional argument used if we need to find out LARGE, SMALL, chúng tôi chúng tôi chúng tôi or chúng tôi when using the ARRAY syntax

How to Use the AGGREGATE Function in Excel?

This AGGREGATE function is very simple and easy to use. Let us now see how to use the AGGREGATE function with the help of some examples.

You can download this AGGREGATE Function Excel Template here – AGGREGATE Function Excel Template

Example #1

The following table contains yearly sales data (2024)

If you run the =SUM (B8:B16) function directly in cell B17,

It gives the correct value because that column does not contain hidden rows, errors & nested subtotals

Here will calculate the SUM using an AGGREGATE function in cell B19.


The result will be 487.

Function_ num: For the SUM function, the function_ num is 9

Option: In Column B, i.e. For 2024-year sales data, all values are given, and we won’t have to ignore any values; it does not contain hidden rows, errors & nested subtotals. so we will select Option 4 (ignore nothing)

Array: is a range for which you want to calculate aggregate functions. Here reference range of values is B8:B16. It is selected as an array of numeric values

‘k’ is an optional argument, and is used only for a function like LARGE, SMALL, chúng tôi chúng tôi chúng tôi or chúng tôi We are calculating the SUM here to omit the value of k. 

Example #2

The following table contains yearly sales data (2024)

In column C, for the 2024 yearly sales data. In the range C8:C16, a cell C11 & C12 contains an error value (#DIV/0! & #N/A); in the AGGREGATE formula, when an appropriate option is used, the AGGREGATE in Excel gives the correct SUM value, neglecting the error value.

It returns an error value due to an error in that range. Because that column contains #DIV/0! & #N/A errors.

To ignore the error values, we have to use option 6 in an AGGREGATE function


The result or output will be 334.

Function_ num: For the SUM function, the function_ num is 9

Option: In Column C, i.e. For 2024-year sales data, In the range C8:C16, a cell C11 & C12 contains an error value (#DIV/0! & #N/A). To ignore these errors, we will select Option 6 (Ignore error values)

Array: It is a range for which you want to calculate aggregate functions. Here reference range of values is C8:C16. The system has chosen it as an array of numeric values.

‘k’ is an optional argument used only for functions like LARGE, SMALL, chúng tôi chúng tôi chúng tôi or chúng tôi We are calculating the SUM here to omit the value of k.

When an appropriate option is used in the AGGREGATE function, the AGGREGATE in Excel returns or gives the SUM of the remaining values neglecting the error value in cells C11 & C12. i.e. 334

Example #3

The following table contains yearly sales data (2024)

In column D, for the 2023 yearly sales data. In the range D8:D16, cell D9 is a blank cell or hidden row & D12 contains an error value (#N/A). In the AGGREGATE formula, when an appropriate option is used, the AGGREGATE in Excel gives the correct SUM value, neglecting the hidden row & error value.

If you run the =SUM (D8:D16) function directly in cell D17,

It returns an #N/A error value due to an error in that range. Because that column contains #N/A error & hidden row or blank value.


The result or output will be 262

Function_ num: For the SUM function, the function_ num is 9

Option: In column D, for the 2023 yearly sales data. In the range D8:D16, cell D9 is a blank cell or hidden row & D12 contains an error value (#N/A). To ignore these errors, we will select Option 7 (Ignore hidden rows and error values)

Array: It is a range for which you want to calculate aggregate functions. Here reference range of values is D8:D16. It is selected as an array of numeric values

‘k’ is an optional argument and is used only for a function like LARGE, SMALL, chúng tôi chúng tôi chúng tôi or chúng tôi We are calculating the SUM here to omit the value of k.

when an appropriate option is used in an AGGREGATE function, the AGGREGATE in Excel returns or gives the SUM of the remaining values neglecting the error value in cells D9 & D12. i.e. 262

Things to Remember

The AGGREGATE function is applicable only for vertical ranges or columns of data. It is not designed for horizontal range or rows of data.

It has a limitation; it only ignores the hidden rows; it does not ignore the hidden columns.

An AGGREGATE function is applicable only for the numeric value

Function _ num argument value should not exceed 19 or less than 1. Similarly, for option argument should not be greater than 7; otherwise, it will give #VALUE! error

In the AGGREGATE function, if in function number argument, if you are using 14 to 19 (LARGE, SMALL, chúng tôi chúng tôi chúng tôi or QUARTILE.EXC), the “K” argument should be used. g. =AGGREGATE(15, 6, A1:A9, 3). If the “K” value or second reference argument is ignored, it will result in a #VALUE! error

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Price In Excel (Formula, Examples)

PRICE in Excel

The price function in excel is used to calculating what would be the price need to pay off a bond per 100 units (mostly in Dollars) which also pays the periodic interest. The price function is financial in Excel. This is mostly used when an investor borrows money by selling bonds instead of stocks. It requires a few more attributes, usually more than other financial functions such as settlement, maturity, yield, redemption, and frequency as mandatory attributes.

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PRICE Formula in Excel:

Below is the PRICE Formula:

Explanation of Price Function in Excel

The PRICE Formula in Excel has 7 segments:

Settlement: This refers to the calendar day on which the deal is settled. The argument passed to this bracket is the date following the date of issue when the security or bond is traded on the market to the entity that is the buyer of said security bond.

Maturity: This bracket accepts a date as a valid argument. It is the calendar day on which the security or bond reaches its expiration, and the principal amount is paid back to a person or entity holding the bond.

Rate: This bracket refers to the annual interest rate of the security or bond at which coupon payments are processed or made.

Redemption: This section refers to the security value; every $100 face value is reimbursed to the bond owner on the redemption date.

Frequency: This bracket refers to the rate of occurrence of coupon payments made every year.

Let us understand the Frequency segment a little more:

The payments can be made Monthly, Annually, Semi-annually, or Quarterly. In these cases, the Frequency would be as follows:

Basis: This bracket is optional and refers to any integer argument which specifies the financial day counting basis.

We shall see the possible values for “Basis” in the table below:

How to Use the PRICE Function in Excel?

You can download this PRICE Function Excel Template here – PRICE Function Excel Template

Example #1

Suppose we are given the following data to calculate the price function in Excel.

The following screenshot shows us how the PRICE Excel function prices a bond.

So the Final Result will be :

Things to Remember

For computation, Excel’s Date format is linear or sequential. That means the default value 1 refers to 1st January 1900, so 2 would ideally be the following day, i.e. 2nd January 1900.

All the variables passed as Settlement, frequency, maturity, and basis value should be valid integers, i.e., floating-point numbers.

If the value passed as maturity or the day of settlement is not a rational date, in that case, the formula of PRICE will result in the #VALUE! error.

If rate < 0 or if Yld < 0 or redemption ≤ 0, then PRICE would return a #NUM! error.

If the value passed as a frequency in the formula of the PRICE function is anything other than 4, 2, or 1, then the PRICE function would return the #NUM! error as a result.

If the basis is greater than 4 or If the basis is less than 0, then the PRICE function will return the #NUM! error.

If maturity value ≤ settlement value, in that case, a #NUM! the PRICE function would return the error.

Thus, it might also be wise to enclose the PRICE function with an IFERROR function, i.e., use the PRICE function inside an IFERROR function to handle the various error cases that might arise in the Frequency, Basis, Settlement Value, etc.

So the result will be :

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Civil Law System Meaning Examples

Some of the countries have specified or codified legal system. Everything is well defined and well documented; hence, every organ of the government and judiciary work based on the rules already codified and documented.

What is the Meaning of Civil Law system?

The Civil Law System is a comprehensive, regularly updated set of legal codes that are present in nations and outline all matters that may be brought before a court, the applicable procedure, and the proper sanctions for each infraction. Such codes discriminate between various kinds of law− substantive law specifies which activities are subject to criminal or civil prosecution, procedural law establishes how to assess whether a specific conduct constitutes a criminal act, and penal law establishes the appropriate punishment. Establishing the facts of the case and applying the rules of the relevant code are the judge’s responsibilities in a civil law system. Although the judge frequently makes the official accusations, looks into the situation, and renders a decision, he or she operates within the confines of a vast body of codified laws. As a result, the lawmakers and legal academics who create and interpret the codes have a greater influence on civil law than the judges.

John Salmond defined civil law as “the law of the state or the law of the land, the law of lawyers and the law of courts.”

Origin of Civil Law

Legislation developed out of the Roman law of Justinian’s Corpus Juris Civilis. During the 18th and 19th centuries, enactment led to separate national codes. The two most influential codes are the Napoleonic Code and the German Code. The code provisions have been implemented by an increasing number of statutory provisions.

Three distinct subgroups develop the civil law system −

French civil law− France, Benelux, Italy, Spain, Portugal, and former colonies of those countries, such as Latin American countries, Quebec, and Louisiana.

German civil law− Germany Austria, Switzerland, Liechtenstein, Japan, South Korea, and the Republic of China (Taiwan).

Scandinavian civil law− Denmark, Sweden, Finland, Norway, Iceland

Principles of the Civil Law System

The principles involved in the civil law system are −

The solution to each case is found in the provisions of the written law,

Precedents, however authoritative, are not binding, and

The deciding court must demonstrate that its decision is based on provisions of the written law and not merely on precedent.

Civil Legal System Administer

The civil law aims to operate in two different ways −

Prevent the violation of people’s rights and

Restore them after a violation.

Branches of Civil Legal System

The civil law is immensely comprehensive and deals with a wide range of problems involving people’s rights and obligations. Various civil law−related branches include the following −

Significance of Civil Legal System

The significance of civil law (in reference to civil cases) is as follows −

In the area of law known as civil law, cases are heard by civil courts and tribunals.

Instead of imprisoning either party, the damages made to them are settled by paying them a certain sum of money.

They are a collection of decisions and laws that have been codified and are binding on all parties.

Contract law is the main subset of civil law, and hence it has a strong bias in favor of contractual commitments.

Sanctions under the Civil Legal System

Most sanctions in civil law are of a pecuniary or monetary nature, in which case the party in breach of the law has to pay some amount of money to the injured party and not to the state. These civil law categories of sanctions include

Restitution (in integrum restitutio)− the original state of matters has to be restored as if the breach had not taken place, so that the party in breach has to pay the amount that the injured party would have if the breach had not taken place.

Another category is when a party is in some specific breach of an obligation and the value of that obligation can be determined− e.g. the contractual price or a share in an estate was refused to be paid at all; or less was paid; or the party is in late payment, etc. In this case, sanctions may not go beyond what would be due under the specific instrument (e.g., contract or estate).

A third category is returning enrichment, in which case the party in breach has to return the profit that it gained from the breach, even if that amount would not have been due to the other party (this sanction does serve preventive purposes as well).

The “queen” of all civil law sanctions is damages− the amount that has to be paid if damage is caused to the other party, including not just the actual damage that occurred but lost profit and all costs in relation to the damage, too. (Note that contemporary legal developments in common law jurisdictions seem to put some emphasis on punishment and prevention in private law, too, within the form of punitive damages, which are in excess of actual damage, lost profit, and costs.) The English word “damage” applies to the value of the loss suffered, while the word “damages” refers to the amount of compensation to be paid.

Another sanction is that when none of the above works, unjust enrichment may still need to be paid.

The law specifically sets forth the application of all these categories of remedy, it describes the situation in which one or another kind of remedy is available and the conditions upon which the remedies may be awarded to the injured party.

Countries Practicing Civil Law System

Following are the major countries that follow civil law system −

South America− e.g. Brazil, Argentina, Chile, Columbia, etc.

Central America− Mexico, etc.

Europe− Austria, France, Germany, Italy, Ukraine etc.

Asia− Japan, Russia, etc.

Conclusion Frequently Asked Questions

Q. What are the salient features of Civil Law System?

The important features of civil law are −

A set of codified laws serves as the basis for most civil laws.

Private citizen rights are the sole subject of civil law. Regarding any legal relationship or responsibility, it refers to disagreements between two or more people or legal bodies.

The violator is subject to civil liability.

Q. What are the sources of Civil Law System?

Civil law systems are legislated from the existing law, custom, and general principles of law. Among these, the main source is enacted (statutory) law; which predominates in civil law systems.

Q. What is the role of judges under Civil Law System?

In the civil law system, the judge maintains a pivotal role in managing the development of the case and the sequence of addressing and resolving issues. Judges must be impartial and strive to properly interpret the meaning, significance, and implications of the law. Judges must also recognize that justice means more than just interpreting the law — it also means showing compassion and understanding for the people on both sides of the case.

How Accumulated Depreciation Works? Formula & Excel Examples

What is Accumulated Depreciation?

Accumulated depreciation is the total depreciation recorded for an asset over its useful life. For Example, Max, a businessman, buys a private plane for $3,000,000. After using it for three years, its value depreciated to $2,700,000. Thus the accumulated depreciation for three years is $300,000.

It is the cumulative asset depreciation up to one point. Each period starts with the depreciation cost applied to the total. One can choose not to use MACRS for depreciated assets if one uses a method other than straight-line depreciation over a set number of years. For example, the unit-of-production method is one such method.

Key Highlights

Accumulated depreciation is an accounting method that allows for the gradual deductibility of long-term assets.

It applies to tangible assets like machinery and equipment and intangible assets like goodwill and patents.

To find it, subtract the salvage value from the asset’s original cost, divide the result by the asset’s valuable life, and multiply by the number of years.

It helps the company’s administration make informed decisions about when to replace and repair the assets.

How Does Accumulated Depreciation Work?

Depreciation is a way to track the spread of the cost of an asset over its useful life.

It includes wear and tear on a business’s equipment, which can affect the asset’s value over time.

It can be subtracted yearly from the business’s taxable income, reducing the company’s taxes.

It helps lower taxes and net profits resulting from this taxable income reduction.

Its basis is that an investment will last longer than its estimated lifetime, even if one uses it only half the time. Depreciation allows a more accurate reflection of the asset’s value over time.

It allows a more accurate reflection of the asset’s value over time by spreading its cost over its useful life.


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Accumulated Depreciation= ((Asset’s Original Cost – Salvage Value)/ Useful Life) * No. Of Years


The initial cost of goods is the initial cost at which one purchases the goods and determines its initial value.

The salvage cost of an asset is its book value after deducting all depreciation.

Useful life is the product’s rough lifespan in years.

The number of Years refers to the period the company has used the product.

Accumulated Depreciation= Accumulated depreciation at the beginning of the year + Depreciation expense for the period – Accumulated depreciation on disposed of assets


Depreciation at the beginning of the year refers to the depreciation of the asset until the beginning of the year.

Depreciation for the period means the amount of asset depreciation in the particular year.

Depreciation on disposed of assets refers to the depreciation associated with the company’s assets, either disposed of or sold.

Examples of Accumulated Depreciation

You can download this Accumulated Depreciation Template here – Accumulated Depreciation Template

Example #1

Lily purchased a new car worth $500,000. The company has a useful life of 6 years and a salvage value of $50,000 at the end of its useful life. Calculate the accumulated depreciation after 2,4, and 5 years of use.



Let us calculate the depreciation for the year 2,

Similarly, for the year 4,

Next, for the year 5,

Example #2

An US corporation ABZ purchases heavy industrial machinery for $2,500,000. At the beginning of the year, the depreciation was $600,000. During the period, the machinery’s value depreciated by $470,000. Value of the disposed assets is $235,000. Calculate the Accumulated depreciation.



Implementing the formula,

Thus, the accumulated depreciation is $835,000 as a result of adding the aggregates of depreciation till the start of the period and during the period and then subtracting the depreciation of assets disposed of from the sum.

Methods to Calculate Straight-line Depreciation Method

Multiply the valuable life of a fixed asset by the depreciable base to determine straight-line depreciation.

The difference between an asset’s total expenditures and its anticipated salvage value at the end of its useful life is known as the depreciable base.

The years that the asset will provide financial benefits indicate the useful life.

Formula: (Asset cost – Estimated residual value) / Anticipated years of use = Accumulated Depreciation

Decreasing Balance Method

A decreasing balance approach accelerates the reporting of depreciation expenditure for assets in their early stages of useful life.

It means they will incur less depreciation expense later in their useful lives.

Formula: Total annual depreciation = Depreciation factor x (1 / Asset life) x Remainder value

Double-Declining Balance Depreciation Method

The double declining balance (DDB) depreciation method is an accounting approach that involves depreciating some assets at twice the rate specified by straight-line depreciation.

As a result, depreciation is most significant in the first year of ownership and gradually decreases over time.

Formula: Total annual depreciation = 2 x Depreciation factor x (1 / Asset life) x Residual value

Depreciation vs. Accumulated Depreciation


It is the total amount recorded up to a specific date and reported on the balance sheet. Depreciation is the amount of the decrease in value for a given period and is typically recorded as an expense on the income statement.

It is the total depreciation that has occurred up to a specific date. Depreciation is the amount of depreciation for a specific period for example, 1 year.

It is the total depreciation taken over the asset’s lifetime, subtracted from its cost to calculate its book value.  To figure out depreciation, take the asset’s cost minus its expected salvage value and divide it by how long it is expected to last.

It is an asset’s total depreciation since purchase.


To give an accurate record of an asset’s historical cost and depreciation over time.

Matching an asset’s price with the income it generates is a crucial principle of accounting.

To provide a way to assess an asset’s remaining useful life and value.

To help management make informed decisions about when to replace or repair assets.

To assist in tax planning, it can help reduce taxable income.

To provide a means of allocating the cost of a purchase over its useful life systematically and rationally.


It reflects the wear and tear on an asset over time, which is a critical component of the asset’s value.

It provides a way to match the cost of an asset to the income it generates, which is a crucial accounting principle.

It helps companies make informed decisions about when to replace or repair assets.

The company can use it in accounting for tax purposes, reducing their taxable income.

It is also used in financial statements such as the balance sheet to indicate the depreciation worth of assets over time.

It also aids in budgeting for future expenses for the replacement of assets.

Final Thoughts

Accumulated depreciation is a way for businesses to track the decrease in the value of their assets over time. The most common method is the straight-line method, which considers the asset’s initial cost, scrap value, and valuable life. This method assumes a steady decrease in value over the asset’s life. Businesses should regularly check and update their depreciation calculations to ensure their financial statements are correct. It will help them make intelligent decisions about replacing assets and managing their money.

Frequently Asked Questions (FAQs) Q1. Are depreciation costs a current asset?

Answer: No. The company reports depreciation expenses in the income statement and other typical business expenses; it is not a current asset. The balance sheet includes accrued depreciation.

Q2. Is accumulated depreciation an expense?

Answer: No. The total amount of asset wear and tear is measured by cumulative depreciation. In other words, it represents the sum of all depreciation costs incurred up to this point.

Q3. Where does accumulated depreciation go on a balance sheet?

Answer: Balance sheets include detailed information about a company’s assets and their original and current value. It is the dollar amount in which an asset’s value decreases from actual to present value.

Q4. What is the difference between depreciation and accumulated depreciation?

Answer: Accumulated Depreciation is the total amount of depreciation in previous periods. Depreciation expense, on the other hand, is the amount of depreciation in a particular period.

Q5. How frequently should the balance sheet’s accumulated depreciation be updated?

Answer: Since most cumulative depreciation occurs annually, one might only need to manually calculate new rates if you update his balance sheets monthly. The balance sheet should be rechecked for any significant changes, though.

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Functions Of Law Meaning Scope

Till date, experts have had difficulty coming up with one definition of law that would encompass its entire field. However, there are numerous definitions of law that are praised for being the most inclusive of the subject’s general scope for the time and conditions in which they were offered. Numerous hypotheses have been developed in an effort to define or comprehend the meaning of the law. Various jurists have offered and endorsed a number of legal theories. Below, a handful of them are covered in further detail −

Natural Theory

According to the natural law view, ethics, morality, and the capacity to determine whether an action is right or wrong are something that nature provides us with rather than something that is created by humans. It contends that morality is a trait that humans are born with and that they are not required to strive to develop morality. Thus, rather than via the force of society or civilizations, laws were created based on this intrinsic capacity to discern between right and wrong. According to this theory, law originated in the natural world. It is the earliest notion that dates back to cultures like ancient Greece and aims to comprehend the meaning and genesis of law.

Great thinkers, including Socrates, Plato, and Aristotle held this thesis to be accurate. Many contemporary legal thinkers, including Hobbes, Rousseau, and John Locke, are known to be in favor of the natural theory of law. The natural theory of law is a tenable explanation for how laws came to be, where they came from, and the primary motivations behind their creation. But since everyone has different morals and ethics, there are subjective differences in the laws. As a result, it is unable to explain the law as it currently exists, i.e., as a set of laws and regulations that differ from region to region but are generally followed.

Positivist Theory

This view, like many others, focuses on what is already the law rather than what ought to be the case. Many legal professionals, including Salmond and Kelsen, firmly believe in this theory, which was created by John Austin and Jeremy Bentham. The analytical school of thought is followed by the positive theory of law, commonly known as legal positivism. It postulates that “A sovereign’s command that is supported by sanctions is called a law.”

First of all, in contrast to the natural theory of law, legal positivism attributes the creation of law to people. It implies that laws are simply orders issued by a sovereign. The laws of nature have no bearing on their legitimacy. Regardless of one’s personal beliefs, ethical standards, or judgments, one should abide by these commands. This theory considers the political organization of a location or community where people have been granted more political power to govern those below them, the general population, because these instructions are believed to have been given by a sovereign.

According to this theory, politics is very important in the creation of laws. If these directives, or laws, are not followed, appropriate penalties are also given. By making deviations or infractions subject to sacredness, this further secures adherence to the aforementioned orders, maintains the viability of laws, and prevents social unrest.

The customary nature of law is described by the theory’s highly precise and simple definition of law. It makes no mention of what the law may or ought to be. It adheres to its analytical methodology and examines the law’s structure, the observable aspect of law that is simple to relate to and comprehend. However, law predates the development of governments and sovereigns. As a result, its theory is inadequate in that regard. This argument has also been criticized for being overly simplistic when it comes to the sovereign’s authority to decide whether a law is valid. Many laws are regarded as lawful because they uphold natural justice or are in line with public policy. Similar to this, people often follow the law in order to benefit from rewards and benefits, develop good habits, gain acceptability in society, or merely out of respect for the law.

Thus, individuals obey the law for a variety of reasons besides holiness. Karl Llewellyn, Oliver Holmes, and Chipman Gray established this legal doctrine. Other accepted legal theories are disregarded by this idea. This idea addresses how the law actually operates. This theory contends that laws made by the legislative branch have no value unless they have practical application. This theory defines laws as only those that apply in real-world situations.

As a result, laws are actually decisions made by the judiciary, not by legislation. According to this notion, the judiciary, not the legislature, is credited with creating laws. In plain English, it says that laws are the result of judges’ decisions based on social, economic, and cultural factors.

Functions of the Law in the Society

It includes −

Upholding of societal law and order

Laws are rules that establish a code of conduct and govern behavior in order to maintain order. They are intended for territory residents to follow. Laws are also in charge of maintaining a nation’s peace. A significantly diversified population can be found in many nations. Conflicts would result if the same legislation were imposed to the entire population, notwithstanding their diversity, divergent needs, and divergent viewpoints. As a result, laws are created to address the requirements of various segments of society and contribute to national security. For instance, the constitution of a secular nation like India leaves certain topics, like marriage, to the people’s individual religions.

They are known as personal laws. safeguarding fundamental rights. Any law that does not contribute to securing and defending human rights would be useless. The purpose of law is to uphold order and benefit society. They are composed to satisfy readers’ wants and passions. Crimes are punished by the law to ensure that the public’s fundamental rights are upheld and to further establish an example for security. Thus, one of law’s most essential roles is to uphold and defend human rights.

Controlling & Regulating Political Systems

Politics and the law are clearly related. Making laws that serve the needs of the people is one of the main duties of the government.


A uniform set of rules to be followed is just one of the many roles played by law. All of the law’s duties may be linked back to its ability to create order and inform people of the proper course of action to take.

Frequently Asked Questions

Q1. How does the law help in the regulation of human relations?

Ans. The law also applies to human connections such as contracts, agreements, families, and weddings. The law serves as a check on people’s interactions and behavior. As a result, it automatically affects interpersonal relationships by prohibiting inappropriate behavior, such as adultery. It is also in charge of defining the proper way to enter into legal relationships, as well as their legitimacy and legality. Cases involving marriage, like divorces, must be recorded and sanctioned by the law in order to be valid. Thus, the law is in charge of governing how people interact with one another.

Q2. How does law help in international relations?

Ans. Law also governs human relationships such as marriages, families, and business contracts. The law acts as a check on how people behave and interact. As a result, by forbidding inappropriate behavior like adultery, it naturally has an impact on interpersonal relationships. The right way to join into legal relationships, as well as their legitimacy and legality, are likewise defined by them. Marriage-related cases, like divorces, must be documented and approved by the law to be valid. Therefore, regulating how people interact with one another is the responsibility of the law.

Q3. How does the law help in regulating economic activities?

Ans. Law also establishes the guidelines and requirements that must be adhered to when engaging in economic activities, including buying, selling, trading, working, and investing. For commercial agreements and dealings to be legitimate and legal, the law is required. Sales taxes, income taxes, GST, and customs laws are just a few of the laws that generate money for the government that is then used to fund investments in the country’s growth. Law must therefore govern the economic sector and its associates in order to protect ordinances.

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