For a manufacturing company, how should depreciation for a machine used in production be recorded?

In a manufacturing company, the way depreciation for a machine used in production is recorded can directly impact the financial statements and cost accounting processes. The correct approach is to debit Inventory-Work-In-Process Overhead and credit Accumulated Depreciation-Equipment.

When a machine is used in production, its cost is allocated over its useful life through depreciation. However, instead of recognizing this cost as a direct expense (like in the case of general operating expenses), it is treated as a manufacturing overhead cost that will be included in the Work-In-Process inventory. This inclusion allows the costs associated with production to be reflected in the inventory value until the goods are completed and sold.

By debiting Inventory-Work-In-Process, the depreciation is capitalized as part of the cost of producing inventory, which aligns with the matching principle of accounting. This ensures that the expense is recognized in the same period as the revenue generated from selling the manufactured goods. On the credit side, Accumulated Depreciation-Equipment increases, reflecting a reduction in the carrying value of the equipment over time.

This method is particularly significant for manufacturing operations, as it accurately portrays how the costs of equipment associated with production contribute to overall inventory values rather than immediately impacting the