What would be the adjustment entry for closing depreciation at the end of the year?
Answers
Adjustment entries are the journal entries that converts an entity’s accounting record in an accrual basis of accounting. In accrual basis of accounting, we recognize incomes when we earn them and not when we receive the cash. Similarly, we recognize the expenses when we incur them and not when we actually pay them. Also, there are some incomes earned but not received and incomes which are received in advance at the end of the accounting period. Similarly, there may be expenses which are outstanding and also there can be prepaid expenses. Such, accrued incomes, Incomes received in advance, outstanding and prepaid expenses require an adjustment in the books of accounts.
Explanation:
Physical assets include property, plant, and equipment etc. Now it is important to calculate the proper depreciation of physical asset, means it should be assigned proper asset valuation. If this is done wrong, it can impact the overall balance sheet of the company, also the loans the company took to purchase the asset. Now when closing the entry of any physical asset, its overall value will be reduced when a certain depreciation is added to it