How to Treat Depreciation

After going through the difficult process of calculating the depreciation of an asset, an accountant must then figure out how to treat the depreciation on the company's financial statement. The account will calculate depreciation using either the straight-line method or a form of accelerated depreciation. Proper treatment of the depreciation will then affect both the balance sheet and income statement. This treatment cannot vary, or else the depreciation will no longer follow the generally accepted accounting principles (GAAP).

Instructions

1. Debit "Depreciation Expense" and credit "Accumulated Depreciation" each year by your yearly depreciation amount.

2. List "Depreciation Expense" on the company's income statement. While this is a non-cash expense, it still reduces the amount of income for the year on the income statement..

3. List "Accumulated Depreciation" directly under the depreciated asset. The asset will remain on the balance sheet at its historic cost, and "Accumulated Depreciation" will reduce the asset by the total amount of depreciation over the asset's life.

References

• Principles of Accounting: Chapter 11
• SEC: Beginners' Guide to Financial Statements