Question

I am having trouble with the entry to adjust accumulated depreciation, can you please explain.

Answer 1

How to Record Depreciation Expense

When a asset is depreciated, the depreciation expense is recorded at the end of the period (i.e month, quarter or year) by debiting Depreciation Expense and crediting Accumulated Depreciation.

Lets assume, depreciated is charged using straight line method of depreciation and $5,000 is depreciation expense every year. Books are closed at Dec 31 every one

Dec	31	Depreciation Expense	5,000.00
		Accumulated Depreciation		5,000.00

Depreciation Expense: It is an expense account. It is shown as debit in the Income Statement. It is measured from period to period. In the illustration above, the depreciation expense is $5,000 for 2016, $5,000 for 2017, $5,000 for 2018, etc.

Accumulated Depreciation: It is a account that represents the accumulated balance of depreciation. It is presented on the asset side of the balance sheet as deduction from the related fixed asset . It is continually measured; hence the accumulated depreciation balance is $5,000 at the end of 2016, $10,000 in 2017, $15,000 in 2018, etc.

Accumulated depreciation is a contra-asset account. Here's a table illustrating the computation of the written down value of the equipment.

Assume, cost of the equipment is $17,000, Useful life is 3 years and residual value is $2,000. Hence, depreciation per year is $5,000

	2016	2017	2014
Equipment - Historical Cost	$17,000	$17,000	$17,000
Less: Accumulated Depreciation	$5,000	$10,000	$15,000
Equipment - WDV	$12,000	$7,000	$2,000

Notice that at the end of the useful life of the asset, the carrying value is equal to the residual value.