When accrual basis accounting system revenues are recognized when earned (even cash is not received) and expenses are recognized when incurred (even cash is not paid). So number of adjustment are required at the end of accounting period before preparing the set of financial statement.  The main objectives of adjustment is to present true financial information. 

Cash is paid before expenses is incurred/ prepaid expenses /deferred expenses/

a. Adjustment entries for depreciation 

b. When prepaid expenses expired 

c. When supplies/material are used. 


a. Adjustment entries for depreciation 

When depreciation is charged to asset account

Depreciation expenses a/c

To Assets a/c

(To record of depreciation)


When depreciation is charged to accumulated depreciation account

Depreciation expenses a/c

To Accumulated depreciation a/c

(To record of depreciation )


Effect on Financial Statement 

In the income statement, the amount of depreciation is reported on the heading of operating expense an same amount is deducted from respective assets in the balance sheet. It reduces amount of net profit along with reduction in the value of assets in the balance sheet. 

Income Statement 

Operating expenses:

Depreciation Expenses ..***

 

Balance sheet 

Asset

Less: Depreciation