Straight-line depreciation refresher

The basic straight-line calculation is prerequisite material from introductory accounting. Use this optional refresher if you do not remember the calculation or the related journal entry. Unit 6 covers depreciation methods, partial years, and changes in estimates.

Review the straight-line calculation

Alder bought equipment for $18,000. It expects to use the equipment for 5 years and receive $3,000 when it disposes of the equipment. Alder expects the equipment to provide service evenly over those 5 years. It is ready for administrative use at the start of the year. Assume no impairment or estimate changes.

Cost less residual value gives the amount allocated over the useful life:

$18,000 − $3,000 = $15,000 depreciable amount
$15,000 ÷ 5 years = $3,000 annual depreciation

Cost, residual value, and useful life are inputs to the calculation. Unit 6 examines how companies select and revise those inputs. For this refresher, use the stated amounts.

Record the period-end adjustment

At year-end Alder records:

Equipment remains at $18,000 cost. Accumulated Depreciation is a credit- normal contra-asset, not a liability. Its opposite normal side creates the net presentation while preserving separate histories:

$18,000 Equipment − $3,000 Accumulated Depreciation
= $15,000 carrying amount

Because the contra credit is linked within the asset section to Equipment's debit balance, subtracting the opposite-side balance produces the net carrying amount. A same-side debit account would add to, rather than offset, gross assets.

The three amounts answer different questions:

• Depreciation Expense is the amount allocated to the current year.
• Accumulated Depreciation is the total depreciation recorded on the equipment through the reporting date.
• Carrying amount is the equipment's cost less its accumulated depreciation.

At the end of Year 1, current-year Depreciation Expense and cumulative Accumulated Depreciation are both $3,000 because Alder has recorded only 1 year. The amounts will differ after another year.

Crediting Accumulated Depreciation preserves the equipment's $18,000 cost in the Equipment account. The credit does not record a liability or a cash receipt. The $15,000 carrying amount also does not establish the equipment's market value.

Check your understanding

Equipment costs $28,000, has an estimated residual value of $4,000, a 4-year useful life, and an even expected service pattern. Assume administrative use, no prior depreciation, and no other adjustments. Compute 1 full year of depreciation. Then prepare the adjusting entry and compute the equipment's carrying amount after the adjustment.

Use Chapter 2 practice: depreciation for a calculation and interpretation check.