Depreciation

Concept

Allocating Asset Cost

Depreciation allocates the cost of a long-lived tangible asset over its useful life. It is NOT a measure of declining market value — it is a systematic cost allocation. Land is never depreciated.

Example

Straight-Line Method

Equipment costs $50,000, has a $5,000 salvage value, and a 5-year useful life. Annual depreciation = ($50,000 - $5,000) / 5 = $9,000 per year. Adjusting entry: Debit Depreciation Expense $9,000, Credit Accumulated Depreciation $9,000.

Key Point

Accumulated Depreciation

Accumulated Depreciation is a contra-asset account. It is subtracted from the asset on the balance sheet. Book Value = Cost - Accumulated Depreciation.

Accruals: Accrued Revenues & Accrued Expenses

The Adjusted Trial Balance

Ready to test your knowledge?

Practice questions from this module to reinforce what you learned.

Practice Questions