How to Report Depreciation

A company must report depreciation for assets, such as a manufacturing plant.

A company must report the total amount of depreciation it has generated each accounting period. Depreciation reduces a company's net income on its income statement and reduces its property, plant and equipment account on its balance sheet. Depreciation is considered a non-cash expense because no actual money is paid for the expense. It is an accounting measure a company calculates to show an approximation of how much of an asset's economic life has been used up each accounting period. The depreciation of an asset reduces only its book value on the balance sheet, not its market value.

Things You'll Need

• End-of-period general ledger balances

Instructions

1. Determine the amount of depreciation expense you have for the accounting period for which you are reporting. This amount will be either the ending debit balance in your depreciation expense account in your general ledger or the depreciation expense amount on your adjusted trial balance.

2. Transfer the amount of depreciation expense for the accounting period to the income statement as a line item under expenses called "Depreciation Expense." In the example, make a $100,000 "Depreciation Expense" line item under "Expenses" on the income statement.

3. Determine the amount of accumulated depreciation you have for the accounting period for which you are reporting. This will be either the ending credit balance in your accumulated depreciation account in your general ledger or the accumulated depreciation amount on your adjusted trial balance, if you have one, for the end of the accounting period. The amount should be the same as depreciation expense for the accounting period. In the example, use $100,000 for accumulated depreciation for the accounting period.

4. Transfer the amount of accumulated depreciation for the accounting period to the "Assets" section of the balance sheet by adding the amount to the existing amount of accumulated depreciation on the balance sheet. In the example, add the $100,000 accumulated depreciation amount for the accounting period to a $300,000 existing accumulated depreciation balance. Place the result as a $400,000 "Accumulated Depreciation" line item on the balance sheet.

5. Subtract the amount of the "Accumulated Depreciation" line item from the amount of the "Property, Plant and Equipment" line item on the balance sheet to determine the net property, plant and equipment amount. This is the amount of all your property, plant and equipment net of all accumulated depreciation for the assets accounted for in property, plant and equipment. In the example, subtract $400,000 from $1.2 million in property, plant and equipment. Place the result as an $800,000 net "Property, Plant and Equipment" line item on the balance sheet.

Tips & Warnings

• This article applies to reporting depreciation only for financial reporting purposes. There are different requirements for reporting depreciation to the Internal Revenue Service for income tax purposes.

References

• AccountingCoach; Introduction to Depreciation; Harold Averkamp, CPA; 2011
• Principles of Accounting.com; Chapter Four: The Reporting Cycle; Larry Walther, Ph.D., CPA, CMA; 2010
• Cliffs Notes: Depreciation of Operating Assets