 In this presentation, we're going to enter an adjusting entry related to depreciation. Let's get started with Sage 50, Cloud Accounting. Here we are in our Get Great Guitars file. We're going to start off by opening up the old financial statements, go into the reports drop down, take a look at the financial statement report. We want to first look at the balance sheet report, our favorite report, that being the balance sheet report. It's going to be for the second month, that being February and okay. And then we're going to scroll down. We're looking at, we don't need to scroll down, we're up here already. We're in the property plant and equipment. So property plant and equipment, we're thinking about the adjusting entry related to it. Now as we think about the adjusting entry, just realize that you might have, you have different options in terms of how you're going to track the equipment costs. So we're going to give the adjusting entry here. You may be tracking the equipment in something like a tax software. You might be dependent on tax software or you're accounting professional to help you out with the depreciation because you're going to have to enter the equipment individually item by item in the tax return typically in any case. And you may have a difference between the book depreciation and the tax depreciation depending on how you're working things. In other words, if you're a smaller company, you may just be running your depreciation on a tax depreciation so that you don't have to have two sets of books related to depreciation basically. However, that's not generally accepted accounting principles and tax depreciation has a bunch of other things involved in it that have nothing to do with just fair financial statement reporting, which is like economic factors and whatnot. So their depreciation on the tax code is not going to be logical all the time with regards to just reporting financial statements. So to be properly reported, then typically in accordance with generally accepted accounting principles, you'd have a different depreciation schedule for the book purposes. But just note that the tax software can do both oftentimes too. You could be running the book depreciation schedules and the tax depreciation schedules. And if that were the case, you could take that external system and just enter the adjusting journal entry into our internal bookkeeping system. That's one way you could do it. And that's what we're going to imagine doing here. So and just also realize that when you look at the equipment and furniture, you're going to have to break that down to get the depreciation to equipment by equipment. So if it's a forklift, which forklift serial number, when was it purchased? If we have another car and blah, blah, and this and that, we'd have to list all of the assets that we have when they were purchased. What's the useful life? What depreciation method are we using for that particular asset? And then we'd add up all the depreciation for all of them in essence and then record the adjusting journal entry. So that's kind of the process you would have just to give a quick scenario of of course the calculation of depreciation. We'll just consider the straight line method just so we can get the concept of it. And then we'll record this out. So for example, if we had the 148,000, this is our total, if that was just one piece of equipment and we were going to try to calculate on a straight line basis what the depreciation was, which would be the most logical method that you would think of if you were just to try to do this. If you realized, you know, we realized, oh, I got to somehow allocate the cost out and I got to do that kind of in a similar way as we would do for like supplies to allocate out. However, this one, the equipment doesn't go down in value. You know, it's still there, but I'm still consuming it as we go. How can I do that? Well, I could try to divide it by the useful life, maybe. If I divide it by like seven, if I say it's a seven year useful life, it would be 21, 142 per year. And then we're doing it per month. So that would be per year divided by 12. And that would be about this amount per month. So that's that's one method that that would be the straight line. Then you can get into most other methods are kind of a variant from that. So a double declining method would be accelerating the beginning depreciation rate and so on and so forth. So we're not going to get into a lot of detail on the different methods. There are different different methods you can use. And again, they'll differ from generally accepted accounting principles and the tax code. The idea now, however, being that we need to decrease the equipment here and record the expense as it's being consumed, which is what we'll do now. Now you might say, well, why don't we just credit the equipment account like we would if it was supplies, which is a similar kind of transaction or prepaid insurance where we just took it out of the insurance prepayment and put it into the expense. We're basically doing the same thing here. We're taking it out of the cost and we're expensing it. So why wouldn't we debit like equipment expense and credit the equipment account on the assets? And the reason they chose not to do that conventionally is because the prepaid insurance, we know how much it went down by exactly. It's not an estimate. And here it is. It's just an estimate. We don't know exactly how much the forklift went down by it didn't physically go down and we don't know what the fair market value is. So we're going to tell our reader it's an estimate by creating another account called accumulated depreciation and say, hey, look, this is the book value is what we bought it for. Here's what we took it down by. It's just an estimate. You have to subtract the two out to get to the actual book value. And then we'll record the expense side, not equipment expense, but calling it depreciation. So that's going to be our transaction debit depreciation credit accumulated depreciation, the actual transaction, the actual adjusting entry fairly straightforward, the concept of it a little bit more difficult, the calculation a little bit more difficult as well. So now we're going to record just just the debit and credit here. So we're going to record the adjusting entry, get this out of the way, we're going to go back on over to our, our information. So let's go on over here, we're going to say we want to go to the tasks, drop it down. And we're going to go on down to the general journal entry, general journal entry, we're going to make this as of the 29th. So we're going to say 29. And then we need depreciation expense. Let's see if we have that in our, in our list down here, we'll go to the expenses down below. We're looking for depreciation expense, depreciation expense. There it is. Found it. All right. And this is going to be an adjusting, so we'll say adjusting a DJL say entry. And then it's going to be for about one, seven, six, two, we're going to say rounded. And then the other side is going to go to accumulated depreciation, which is a contra asset accounts and asset with a, with a credit balance. So I'm going to pick this one up, accumulated depreciation. And that's going to be for the credit of the one, seven, six, two, let's go ahead and record that and check it out. So we're going to say save to record it, close it up. And then we're going to go to balance sheet to check it out. And then we'll go to the income statement to further check it out. So we're on the balance sheet. We're going to be refreshing the balance sheet. We'll see that a new account then arise or shows up that being the 1,762. Because it's a negative asset account and that's it's a contra asset account. So that means we're telling the reader, Hey, look, this is what we purchased it for. This is the total equipment purchase price, basically. And this is what has the estimate of how much has been consumed or used. Therefore, if you subtract those two out, you get the book value, which is currently the 1,46238. And then on the income statement side, let's go to the income statement side of things by opening up the old income statement for February. That's what we want. I'm going to uncheck these because I don't need the zero balances and that's how you remove the zero balances by unchecking those. So then if we go down below, we're going to say that we should have a depreciation expense down here. So there it is. I couldn't see it for a second, but there it is the 1,762. So this is the expense related to consuming the equipment. Notice it's a similar concept as we had with the prepaid insurance. We expense the insurance as it's being consumed, not when it's being purchased. Same concept for depreciation. We're expensing the use of the property planting equipment as it's consumed, rather than when it is purchased. It's just a little bit more complicated due to the fact that we have depreciation instead of like equipment expense and accumulated depreciation and the contra asset account that we're using on the balance sheet side of things. So that's going to be it for now. Let's get out of here.