Part IVPreparing for Year’s.(or Month’s) this part . . .ventually, every accounting period comes to an end,.and whether it’s the end of a month, a quarter, or , you need to check your work and get ready to prepare reports for the periodThis part introduces you to the part of the that involves summarizing and adjusting at the end of an accounting period. You can about the key adjustments that you need to make depreciation of your fixed assets, such as cars . This part also shows you how to calculate your business’s interest payments and income booksTo round out the process, we show you how to prove books by checking your cash, testing your book’, and making any needed adjustments, accruals, 12Depreciating Your This Chapter.▶ Understanding depreciation and why you do it.▶ Exploring depreciation methods.▶ Looking at depreciation’s tax impact.▶ Pulling together depreciation schedules.▶ Entering depreciation expenses in the booksAll businesses use equipment, furnishings, and vehicles that last a year. Any asset that has a lifespan of more than a year is called asset or property, plant, and equipment. These assets may last longer assets, but even fixed assets eventually get old and need replacingAnd because your business should match its expenses with its revenue, ’t want to write off the full expense of a fixed asset in one year. After all,.you’ll certainly use the asset for more than one yearImagine how bad your income statement would look if you charged to account the cost of a $100,000 piece of equipment in just one year?.That income statement would make it look like your business wasn’t . Imagine the impact on a small business — $100,000 could eat up profit, or maybe even put it in the position of reporting a lossInstead of expensing the full amount of a fixed asset in one year, you accounting method called depreciation to charge some of the cost of to an expense on your income statement while your business uses assetRecording depreciation achieves two objectives. First, depreciation book value of the asset while it wears off. Book value or carrying amount —.in the case of property, plant, and equipment — represents the cost of less all the depreciation recorded against the asset to date, as the balance sheet. Second, depreciation pieces out a portion of the IV: Preparing the Books for Year’s (or Month’s) the asset to an expense that reduces your profit because of the use of . You need to record a charge for depreciation expense on your because this asset helped you earn revenue during the year. In , we introduce you to some of the various ways you can fixed assets and explain how to calculate depreciation, how depreciation impacts both the income statement and your tax bill, and how to in your may think of depreciation as something that happens to your car when value as soon as you drive off the dealer’s car lot. When you’re accounting, the definition of depreciation is a bit differentEssentially, accountants use depreciation as a way to allocate the costs of asset over the period in which the business can use the asset. You, , record the full cost when your business buys the asset, but reduce the book value or carrying amount of the asset by subtracting a portion of that cost as a depreciation expense each year. don’t involve the exchange of cash; they’re solely done for accounting purposes, to achieve some fairness in the amount of expenses you your income statement. Most companies enter depreciati