Unit 6

Accounting and Finance Foundations Unit 6: Journalizing 490

Accountants also use vouchers to enter a variety of different adjusting entries into the general ledger.

Adjusting entries, remember, are journal entries that are recorded at the end of an accounting period to

adjust general ledger accounts. Examples of adjusting entries include depreciation and inventory.

Depreciation is the reduction in value of goods or assets occurring over a set period of time. Business assets

such as equipment, furniture, fixtures, computers, buildings, and cars should all be depreciated. But, no asset

should be depreciated fully in a single accounting period. Instead, you should record the depreciation expense

over the useful life of the asset—the estimated length of time that the asset will be used.

Accountants use several different methods to calculate depreciation. However, we’ll focus here on just the

most commonly used method: the straight-line method. The straight-line depreciation method formula is:

Depreciation Expense

=

(^) Asset Value – Salvage Value
Useful Life of the Asset (in years)
To calculate the depreciation expense for an asset, you need to know three things—the asset value, which
is the original cost of the asset; the salvage value, which is the estimated value of the asset at the end of its
useful life; and the useful life of the asset, which is the estimated length of time that the asset will be used.
Let’s say, for example, that we want to use the straight-line method to calculate the depreciation expense
for Mrs. King’s Interior’s office furniture. Mrs. King purchased the furniture for $2,000. Its estimated useful
life is five years, and its salvage value is $200. Given that information, our calculations are:
Depreciation Expense

(^) $2,000 – $200
5 years
Depreciation Expense

(^) $1,800
5 years
Depreciation Expense
= $ 360
(^)
Journalizing
Chapter 6
Lesson 17.2 Adjusting Entries and Depreciation
Student Guide
Chapter 17
So, the depreciation expense for Mrs. King’s office furniture
is $360.00.
Now that you’ve calculated the depreciation expense for this
accounting period, you need to make sure that depreciation
expense appears as an account in the chart of accounts.
The Less: Accumulated
Depreciation account
is known as a contra asset
account. The use of contra
asset accounts allows the
general ledger to reflect
the original cost of the
fixed asset and accumulat-
ed depreciation separately.
If it does not, you need to add it as a new account named Depreciation Expense, with the account
number 530. You need to make sure there is an account on the asset side of the equation – Less:
Accumulated Depreciation 131—as well.