accumulated depreciation equipment amount on the journalize adjusting entry
How did they get the
Solution:-
Assets like buildings and equipment will provide productive benefits to a number of periods. Thus, a portion of their cost is allocated to each period. This process is called Depreciation. There are several methods in depreciating fixed assets. The most common and simplest is the straight-line depreciation method.
For example, ABC Company acquired equipment for $30,000 at the beginning of 2010. Assume that the equipment can be used for 3 years. The entire amount of $30,000 shall be distributed over three years, hence depreciation expense of $10,000 each year .There is no residual value.
How to Record Depreciation Expense
Depreciation is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation. This is recorded at the end of the period (usually, at the end of every month, quarter, or year).
The entry to record the $10,000 depreciation every year would be:
|
Dec |
31 |
Depreciation Expense |
$10,000 |
|
|
|
|
Accumulated Depreciation |
|
$10,000 |
Depreciation Expense: An expense account; hence, it is presented in the income statement. It is measured from period to period. In the illustration above, the depreciation expense is $10,000 for 2010, $10,000 for 2011, $10,000 for 2012.
Accumulated depreciation: A balance sheet account that represents the accumulated balance of depreciation. It is continually measured; hence the accumulated depreciation balance is $10,000 at the end of 2010, $20,000 in 2011, $30,000 in 2012.
Accumulated depreciation is a unique account. It is reported on the balance sheet as a contra asset. A contra account is an account that is subtracted from a related account. As a result, contra accounts have opposite debit/credit rules. In other words, accumulated depreciation is increased with a credit, because the associated asset normally has a debit balance. The following statements show how accumulated depreciation and depreciation expense would appear for each year.
|
Particulars |
Years |
||
|
|
2010 |
2011 |
2012 |
|
Equipment-Historical cost |
$30,000 |
$30,000 |
$30,000 |
|
Less:-Accumulated Depreciation |
$10,000 |
$20,000 |
$30,000 |
|
Carrying Value |
$20,000 |
$10,000 |
0 |
As one can see on each year’s balance sheet, the asset continues to be reported at its $30,000 cost. However, it is also reduced each year by the ever-growing accumulated depreciation. The asset cost minus accumulated depreciation is known as the book value of the asset. For example, at December 31, 2011, the net book value of the truck is $10,000, consisting of $30,000 cost less $20,000 of accumulated depreciation. By the end of the asset’s life, its cost has been fully depreciated and its net book value has been reduced to zero. Customarily the asset could then be removed from the accounts, presuming it is then fully used up and retired.
Note:- The end of the useful life of the asset, the carrying value is equal to zero (or )the residual value.
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