Chapter 3: The Adjusting Process

Assume that you are the accountant for Computer Consultants. Prior to this year, Computer Consultants operated out of a leased office. However, the company purchased its own office building this year. The building is in an area where real estate values have been increasing an average of 6 percent per year.

The owner of Computer Consultants has asked why you recorded depreciation on the building if real estate values are appreciating. Write a response to the owner explaining why depreciation must be recorded on the companys accounting records.