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Adjusting Entries: Depreciation definitions

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  • Depreciation
    Allocation of a long-term asset's cost over its useful life to match expense with annual benefit received.
  • Adjusting Entry
    Accounting record made at period end to update accounts for events not yet reflected, such as depreciation.
  • Long-term Asset
    Resource with significant value expected to provide economic benefit over multiple years, like machinery.
  • Useful Life
    Estimated period an asset is expected to be productive and provide value to a company.
  • Depreciation Expense
    Annual charge reflecting the portion of an asset's cost allocated to the current accounting period.
  • Accumulated Depreciation
    Total depreciation recorded against an asset since acquisition, reducing its book value on the balance sheet.
  • Contra Asset Account
    Account with a balance opposite to its related asset, used to offset and reduce the asset's reported value.
  • Net Book Value
    Asset's original cost minus accumulated depreciation, representing its current value on the books.
  • Historical Cost
    Original purchase price of an asset, recorded at acquisition and used as the basis for depreciation.
  • Straight-line Depreciation
    Method allocating equal depreciation expense to each year of an asset's useful life.
  • Journal Entry
    Formal accounting record documenting the debit and credit effects of a transaction, such as depreciation.
  • Balance Sheet
    Financial statement presenting a company's assets, liabilities, and equity at a specific point in time.
  • Income Statement
    Financial report summarizing revenues and expenses over a period, including depreciation expense.
  • Parent Account
    Primary account, such as machinery, whose value is adjusted by a related contra account.
  • Debit Balance
    Normal balance for asset accounts, increased by debits and decreased by credits.