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ADJUSTING ENTRIES(DEPRECIATION)
Cathleen Angelica L. Rubio

WHEN WILL YOU USE A.E? NORMAL BALANCE

At the end of every accounting period prior to that o ASSET – DEBIT
preparation of financial statement. o LIABILITY – CREDIT
o CAPITAL – CREDIT
o DRAWINGS – DEBIT
o REVENUE OR INCOME – CREDIT
o EXPENSE – DEBIT

DEPRECIATION
 Recording As expense they used portion of the
cost of property plant and equipment (fixed
cost).
 the decrease in value of a fixed asset due to use
Types of Notes: Asset –
wear, and tear, obsolescence and passage of
Adjustments Future benefit;
time.
Expense – Past.
 Land is not depreciated because land is
assumed has unlimited useful life.
 Depreciation
 Tangible
 Doubtful Accounts or Bad
 beyond one (1) year
Debts
 not intended for sale.
 Deferred Expense or Prepaid
Expense
 Deferred income
EXERCISE  Accrued Expense
On April 1, 2018, la Carlotta trading purchase an office  Accrued income
equipment for 155,000. It has an estimated useful life of
10 years and salvage value (or scrap or residual value)
of 5000.
Annual 𝐶𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 =
𝑢𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒

Note: Cost minus Salvage value is

known as “Depreciation Cost”.
 NOTES TO STATEMENT OF LET SAY IT IS THE END
FINANCIAL POSITION 2018 OF ACCOUNTING
Office Equipment 155,000 PERIOD OF 2019
Less: Accumulated Depreciation 11,250
Total: (Net book Value) 143,000

Depreciation Expense 11,250

REAL OR PERMANENT
NOTES TO STATEMENT OF
ACCOUNT
FINANCIAL
POSITION2018-2019
 Balance sheet account: asset, liabilities and
capital including contra-assets and contra- Office Equipment 155,000
liability accounts.
Less: Accumulated Depreciation 26,250
 Their balance at the end of one accounting
period is carried over to the next period. Total: (Net book Value) 128,750

Depreciation Expense 15,000

NOMINAL OR TEMPORARY
ACCOUNT

 Income statement accounts: revenue and

expenses plus drawings. DEC312019:
 Their balance at the end of one accounting 𝟏𝟓𝟓,𝟎𝟎𝟎 −𝟓,𝟎𝟎𝟎
A.D= = 15,000
period becomes ZERO as the beginning of the 𝟏𝟎
next period (Not carried over).
Why not divided into 12 months? It is
because 15,000 is already for 1 year.
From Dec 31, 2018 to Dec 31, 2019 is 1
year. While April 1, 2018 to Dec 31,
2018 is only 9 months.