How to Figure Accumulated Depreciation in Adjusting Entries
Accumulated depreciation is the current amount of depreciation applied to an asset. When a business buys a vehicle or computer, the item is assigned a lifespan. The life of the asset depends on the asset -- for example, a vehicle can have a lifespan of five years, while a computer's might only be three. The depreciation is applied monthly, and the amount is deducted from the value of the asset using an account called depreciation expense. A partner account, accumulated depreciation, records the running total. Accumulated depreciation subtracted from the asset's purchase price is the asset's current value.
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Instructions
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1
Determine the amount of depreciation for the accounting period. Assets such as buildings, manufacturing equipment, office equipment and vehicles are depreciated throughout their life cycle. For example, if you purchased a vehicle for $30,000 and you anticipate using the vehicle for five years, the annual depreciation for the vehicle is $6,000 per year since $30,000 / 5 = $6,000. Depreciation is applied on a monthly basis, so the amount of monthly depreciation for the vehicle is $500, since $6,000 / 12 = $500.
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Debit depreciation expense. Depreciation expense deducts the amount of depreciation from the asset, lowering the value of the asset. So, using the vehicle from Step 1, "Depreciation Expense -- Vehicle" is debited $500.
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Credit accumulated depreciation. Depreciation expense is for the monthly amount, whereas accumulated depreciation carries the running balance. So, if you debited the vehicle's depreciation expense account $500, you will credit "accumulated depreciation -- vehicle" $500. This adds the current monthly depreciation expense to the accumulated balance.
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Make the appropriate post to the financial statements. Depreciation expense is included on the income statement under "Expenses," while accumulated depreciation is recorded on the balance sheet under "Long-term Assets."
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Tips & Warnings
Accumulated depreciation carries a running balance. In the case of the vehicle, if you have depreciated the vehicle for three months, the accumulated depreciation amount for the vehicle is $1,500. Depreciation is added to the accumulated depreciation account until the asset is either completely depreciated or the business disposes of the asset.
