n January 1, 2018, World Inc. purchased five machines at a cost of $14,000 each. The company adopted the group (straight-line) depreciation method, using an eight-year life with a $2,800 salvage value per machine. Correct depreciation was recorded in 2016 and 2017. On January 1, 2020, one of the machines was sold for $6,500. On January 3, 2020, a new unrelated piece of equipment was purchased for $15,000 with no salvage value and a six-year life. It will be depreciated using the straight-line method. Required:   Prepare appropriate journal entries for a. January 1, 2020 b. December 31, 2020, to record depreciation expense

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.