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Depreciation is an accounting gimmick to recognize the expense of using a fixed asset over a period of time. Although you may not be all that familiar with the mechanics of depreciation, you probably do understand the logic. For the sake of illustration, suppose that you bought a $12,000 delivery truck. Also suppose that because you know how to do your own repair work and take excellent care of your vehicles, you’ll be able to use this truck for ten years. Further suppose that at the end of the ten years, the truck will have a $2,000 salvage value (your best guess). Depreciation says that if you buy something for $12,000 and later sell it for $2,000, that decrease in value can be apportioned to expense. In this case, the $10,000 decrease in value is counted as expense over ten years. That expense is depreciation.

Accountants and tax accounting laws use a variety of methods to apportion the cost of using an asset over the years in which it’s used. A common method is called straight-line depreciation; it divides the decrease in value by the number of years that an asset is used. An asset that decreases $10,000 over ten years, for example, produces $1,000 a year of depreciation expense.

To record depreciation, you use a journal entry like the one shown in Table 3-11.

TABLE 3-11 Journal Entry 11: Recording Fixed Asset Depreciation

Account	Debit	Credit
Depreciation expense	$1,000
Acc. dep. — delivery truck		$1,000