Depreciation expense and Accumulated Depreciation. Financial Accounting

Depreciation expense and accumulated depreciation are essential financial accounting concepts tested on the CPA and CMA exams, and in this lecture Professor Farhat explains how businesses allocate the cost of tangible fixed assets over their useful lives. You'll learn how depreciation supports the matching principle, which assets are depreciable and why land is not, how salvage value affects the depreciable amount, how the straight-line method works, the journal entry to record depreciation, and how accumulated depreciation reduces an asset's book value on the balance sheet. Ideal for accounting students, bookkeepers, and CPA, CMA, and EA candidates searching for how depreciation works and how to record depreciation expense and accumulated depreciation. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Video Timeline & Key Concepts: 0:00 Introduction 1:30 Depreciation defined: allocating the cost of a tangible asset over its useful life, not a change in market value 2:03 The matching principle: matching an asset's expense with the revenue it generates 4:24 Depreciable assets: machinery, vehicles, and equipment 5:12 Why land is not depreciated (its useful life is unlimited) 6:53 Salvage value and how it reduces the depreciable amount 8:17 The straight-line depreciation method 9:11 Equal depreciation expense each year under straight-line 11:14 The journal entry: debit depreciation expense, credit accumulated depreciation 13:45 Book value: cost minus accumulated depreciation 15:42 Balance sheet presentation showing original cost less accumulated depreciation Frequently Asked Questions: What is the difference between depreciation expense and accumulated depreciation? Depreciation expense is the portion of an asset's cost allocated to a single accounting period and reported on the income statement. Accumulated depreciation is the running total of all depreciation expense recorded on an asset since it was acquired. It is a contra-asset account that reduces the asset's carrying value on the balance sheet. Why is land not depreciated? Land is not depreciated because it has an unlimited useful life and does not wear out or become obsolete the way buildings, machinery, and equipment do. Since depreciation allocates cost over a finite useful life, and land's life is considered indefinite, its cost remains on the books without depreciation. How does the straight-line method calculate depreciation? Under the straight-line method, you subtract the salvage value from the asset's cost to get the depreciable amount, then divide by the asset's useful life in years. This produces the same depreciation expense each year, which is recorded by debiting depreciation expense and crediting accumulated depreciation. How is book value calculated? Book value, also called carrying value, is calculated as the asset's original cost minus its accumulated depreciation. On the balance sheet, the asset is typically shown at its original cost with accumulated depreciation subtracted, so readers can see both the historical cost and how much has been depreciated to date. Hashtags: #depreciation #accumulateddepreciation #straightlinemethod #bookvalue #financialaccounting #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses