We expense the cost of a Long-Term Asset, such as Machinery, over its useful life. This is called depreciation of the asset's value. We dive much deeper into the concept of depreciation in later chapters, but this is a good time to understand the basics.

Concept #1: Adjusting Journal Entries: Depreciation (First Year)

Concept #2: Adjusting Journal Entries: Depreciation (Second Year)

Practice: On January 1, Super Car Wash purchases a brand new auto-washing machine on account for $40,000. The company expects the machine to last eight years. The company chose the “straight-line” method to depreciate the asset, expecting no salvage value. The adjusting entry at the end of the first year would include:

Practice: What will be the book value of the asset after two years?

Practice: On January 1, 1989 XYX Company purchased a machine for $180,000 in cash. The company estimated a nine year useful life with no salvage value. After the correct entries are made, what will be the balance in the Accumulated Depreciation account on December 31, 1992?