How is depreciation adjusted in accounting records?

The adjustment for depreciation in accounting records is performed by debiting depreciation expense and crediting accumulated depreciation. This process reflects the allocation of the cost of tangible assets over their useful lives, which is an essential part of the accrual accounting framework.

When you debit depreciation expense, you recognize the cost associated with the use of the asset during the accounting period. This expense reduces net income on the income statement, effectively matching the asset's cost with the revenue it generates.

Conversely, when you credit accumulated depreciation, you are increasing this contra asset account, which serves to offset the value of the asset on the balance sheet. Accumulated depreciation represents the total depreciation expense that has been allocated to an asset since its acquisition. This adjustment does not affect cash directly, as it is a non-cash accounting entry that simply reflects the decrease in the asset's book value over time.

This method of adjusting for depreciation ensures that the financial statements present a more accurate view of a company's financial position and performance, adhering to the principles of periodicity and matching.