How to Adjust an Entry to Record Depreciation

Depreciation is an accounting convention used to help bookkeepers to better match revenues with expenses. While it is a non-cash expense---that is, there is no real cash outlay associated with the transaction---it can reduce the amount of net income and therefore the amount of your tax liability which is a real cash outlay. There are several types of depreciation methods, but they all use the same methodology for recording adjustments.

Instructions

1. Determine the depreciation expense for the year. In this example, the depreciation expense is $1,000.

2. Make a Credit to Depreciation Expense and a debit to Accumulated Depreciation for $1,000. Accumulated depreciation is used instead of the actual value of the asset on the books. This is called a contra-account.

3. Make a Credit to Depreciation Expense and Debit to Accumulated Depreciation for Year 2. The Depreciation Expense stays the same; however, you are adding another $1,000 to the Accumulated Depreciation. The total for accumulated depreciation is $2,000 in Year 2.

4. Continue depreciating the asset until the full value of the asset is transferred to Accumulated Depreciation.

References

• Accounting, Financial & Tax: How To Calculate And Record Depreciation [of Fixed Asset]