Appendix for Chapter 4
The Accounting Cycle Continued
Appendix for Chapter 4 –
Summary: Assets such as computer equipment benefit a company for more than one year or one
accounting cycle. To account for these assets, we must recognize a portion of the cost of these assets used
up during the accounting period. Two accounts are used in the calculation and accounting for
depreciation: Depreciation Expense (Income Statement account) and Accumulated Depreciation (Balance
Sheet account).
Two key accounting principles are the basis for the calculation and reporting of depreciation. One is the
Cost Principle which requires the Depreciation Expense and the asset amount to be based on the original
Lecture Outline:
1. Depreciation adjusting entries:
a. Basic depreciation guidelines:
i. Assets are recorded at their historical cost (the price paid for them).
ii. A contra asset is called accumulated depreciation to record the total depreciation taken
over the life of the asset.
iii. Depreciation is the spreading of this cost over the usefulness of the asset and the
spreading of this cost represents the wear and tear of the asset.