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Worked-example setupScope and assumptions
- The verified straight-line schedule supplies $6,000 Year 1 depreciation for equipment with $36,000 gross cost.
- Northline's unadjusted balances are $14,000 Cash, $36,000 Equipment, and $50,000 owner-sourced equity.
- No other entry, contra balance, disposal, impairment, or partial-period convention applies.
- Period
- Year 1 adjusted trial balance before closing
- Units
- USD
- Rounding
- Whole US dollars; no rounding required
Problem
Northline's unadjusted balances are Cash $14,000 debit, Equipment $36,000 debit, and Owners' Equity $50,000 credit. All other accounts begin at zero. The equipment was available for administrative use throughout Year 1. Its estimated residual value is $6,000 and useful life is five years. Northline uses straight-line depreciation; assume no impairment or other adjustments.
Annual depreciation is ($36,000 - $6,000) ÷ 5 = $6,000. Prepare the adjusting entry, adjusted trial balance, and equipment presentation.
Entry and normal sides
Depreciation Expense is debit-normal. Accumulated Depreciation is a credit- normal contra-asset because the related Equipment is debit-normal. The credit does not represent Cash received or a liability incurred.
Adjusted trial balance
| Account | Debit | Credit |
|---|---|---|
| Cash | $14,000 | — |
| Equipment | $36,000 | — |
| Depreciation Expense | $6,000 | — |
| Accumulated Depreciation | — | $6,000 |
| Owners' Equity | — | $50,000 |
| Total | $56,000 | $56,000 |
The $6,000 activity total is not the $56,000 ending trial-balance total. Opening Cash, Equipment, and equity remain part of the ending balances. The same flow-versus-stock distinction separates $6,000 current Depreciation Expense from the Accumulated Depreciation balance that carries cumulative allocations into later periods.
Equipment presentation
Equipment, gross cost $36,000
Less: Accumulated Depreciation (6,000)
Equipment carrying amount $30,000
The trial balance shows the separate gross debit and contra credit; a statement or note can present their linked net amount. Both views derive from the same accounts but answer different questions.
Interpretation
The entry reduces Year 1 income by $6,000 before closing and reduces equipment carrying amount to $30,000. Cash remains $14,000. The facts do not establish market value, physical wear, impairment, or replacement funding.
Common wrong paths
- Credit Equipment directly: The entry balances but erases the separate gross-cost and cumulative-allocation histories.
- Credit Cash: No Year 1 cash transaction accompanies the allocation.
- Call the contra a liability: Its credit side reflects the relationship to a debit-normal asset, not a creditor claim.
- Add gross cost and contra magnitude: Carrying amount subtracts the linked contra balance; addition would report $42,000.
Verified calculation · journal entry
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- accounts
- 5 fields
Inspect data
{
"accumulated_depreciation": {
"classification": "contra-asset",
"opening": 0
},
"cash": {
"classification": "asset",
"opening": 14000
},
"depreciation_expense": {
"classification": "expense",
"opening": 0
},
"equipment": {
"classification": "asset",
"opening": 36000
},
"owners_equity": {
"classification": "equity",
"opening": 50000
}
}- entries
- 1 item
Inspect data
[
{
"label": "Year 1 equipment depreciation",
"lines": [
{
"account": "depreciation_expense",
"credit": null,
"debit": 6000
},
{
"account": "accumulated_depreciation",
"credit": 6000,
"debit": null
}
]
}
]Recomputed result
| Measure | Value |
|---|---|
| accumulated depreciation | 6,000 |
| cash | 14,000 |
| depreciation expense | 6,000 |
| ending credit balances | 56,000 |
| ending debit balances | 56,000 |
| equipment | 36,000 |
| owners equity | 50,000 |
| total credits | 6,000 |
| total debits | 6,000 |
| trial balance difference | 0 |