In a nonmanufacturing company, how is depreciation recorded for the year?

In a nonmanufacturing company, depreciation is typically recorded to reflect the wear and tear or obsolescence of equipment and other tangible assets over time. The correct accounting treatment for recording depreciation involves recognizing the expense associated with the use of these assets.

When recording depreciation, the correct entry is to debit Depreciation Expense, which reflects the cost of using the asset during the accounting period, and credit Accumulated Depreciation-Equipment, which is a contra asset account that offsets the value of the equipment on the balance sheet. This reflects that the asset has decreased in value due to depreciation.

Recording depreciation in this manner properly matches the expense of the asset with the revenue it helps generate, adhering to the matching principle in accounting. It ensures that the financial statements accurately reflect the value of the company’s assets and the expenses associated with their use.