Journal Entry for Depreciation

Reduction in value of tangible fixed assets due to normal usage, wear and tear, new technology or unfavourable market conditions is called Depreciation. Journal entry for depreciation depends on whether the provision for depreciation/accumulated depreciation account is maintained or not. 

Assets such as plant and machinery, buildings, vehicles, furniture etc. which are expected to last more than one year, but not for an infinite number of years are subject to depreciation. Below journal entry for depreciation assumes that depreciation is charged directly to the asset account. 

Journal entry for depreciation;

Depreciation A/C	Debit
To Asset A/C	Credit

(Assuming no provision/accumulated depreciation account is maintained)

Golden rules of accounting applied in the above journal entry are;

• Depreciation – Nominal Account > Dr. All expenses & losses
• Asset – Real Account > Cr. What goes out

 

To Transfer Depreciation into P&L

Profit & Loss A/C	Debit
To Depreciation A/C	Credit

After the asset’s useful life when all depreciation is charged throughout the years the asset approaches it scrap or residual value.

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Related Topic – Why is Depreciation not Charged on Land?

Example

Let’s assume that a piece of machinery worth 1,00,000 is charged depreciation (Straight line method) at 10%. The journal entry will be;

Depreciation A/C	10,000
To Machinery A/C	10,000

 

To Transfer it to the Income Statement

Profit & Loss A/C	10,000
To Depreciation on Machinery A/C	10,000

 

>Read Amortization with an example

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