How to Adjust Accumulated Depreciation
Depreciation is the expense of using an asset over a period of time. This expense not only shows on the income statement, but also lowers the carrying value of the asset through a line item on the balance sheet called accumulated depreciation. Since depreciation can be a tricky beast, the accumulated depreciation amount may end up being incorrect at the years end. In order to fix this, you will need to adjust the line item in order to show the correct value.
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Instructions
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Look at the accumulated depreciation and depreciation expense account in the general ledger which you have kept throughout the year. Compare that to the amount listed in income statement or balance sheet to determine what adjustment needs to be made.
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Debit the depreciation expense line item and credit the accumulated depreciation line item in the general ledger if there is not enough accumulated.
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Debit the accumulated depreciation line item and credit the deprecation expense line item in the general ledget if there is too much depreciation accumulated.
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Transfer the adjusting entries to their accounts to receive new totals. Place the new on the income statement and the balance sheet in their respective locations (income statement for the depreciation expense and balance sheet for the accumulated depreciation)
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Tips & Warnings
You may need to look over each of your depreciation schedules and recalculate several of the months in order to get the correct number of what the depreciation should be. Make sure you go through everything for accuracy.
It is vital that the adjusting entry is done correctly and accurately as these figures will effect the net income of a period and the amount of equity the shareholders have in the company. If the expense is too low, there may be tax consequences as you will have a higher income.
