Straight-Line Depreciation

The straight-line depreciation method evenly disperses the wear-and-tear on the equipment over the course of the equipment's life.

Scenario: On March 1st you buy a lemon squeezer for $240. The journal entry representing the purchase looks like so:

TransactionDebitCredit
Equipment$240
     Cash$240

Each year of use, your lemon squeezer takes on $60 of depreciation. Write the adjusting entry on March 31st for the first month of depreciation on the lemon squeezer.

The blue underlined text signals...

  • Write the adjusting entry on March 31st for the first month of depreciation. ➡️ We'll expense this cost of running our business through Depreciation Expense.
  • This depreciation is diminishing the value of our lemon squeezer. ➡️ We'll store that "decrease of value" in Accumulated Depreciation (as a contra-asset).

Annual Depreciation = $60

Monthly Depreciation = Annual Depreciation / 12 months
Monthly Depreciation = $60 / 12 months
Monthly Depreciation = $5

TransactionDebitCredit
Depreciation Expense$5
     ??????

The reason is...

  • We have incurred an expense (+) through the depreciation on our lemon squeezer as a cost of running our business.
  • This is represented through Depreciation Expense.
  • Which is an expense account, and therefore has a normal debit balance.
  • So, to increase it by $5, we'll debit it.

ACCRUAL BASIS REMINDER: Before we enter the next period (April) we must record the depreciation on our lemon squeezer over the current period (March) to follow accrual basis accounting.

TransactionDebitCredit
Depreciation Expense$5
     Accumulated Depreciation$5

The reason is...

  • We have accumulated (+) wear-and-tear (a.k.a. depreciation) on our lemon squeezer.
  • This is represented through Accumulated Depreciation.
  • Which is a contra-asset account, and therefore has a normal credit balance.
  • So, to increase it by $5, we'll credit it.
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