Depreciation can be handled monthly or annually. It is important because things do, in fact, wear out and have to be replaced, and this is where that process is built into your accounting records.
You start with a list of your assets. From this you need to estimate how much they will depreciate each year. Usually that is the price of the asset divided by the number of years you think it will last. To calculate your depreciation monthly, you divide the annual depreciation amount by 12.
To give yourself an accurate idea of how your business is faring financially each month, debit the account depreciation expense with the monthly estimates, and credit accumulated depreciation. Assets you might depreciate are office equipment, computers, tools, vehicles, and buildings.
Most computer software accounting systems have a setup where you can tell it to make those entries for you automatically each month. Making the entries monthly keeps you from overestimating your how much profit you are making.
