What is Depriciation ?
Depreciation refers to the systematic allocation of the cost of a tangible asset over its estimated useful life.
It is an accounting method used to recognize the gradual decline in the value of an asset due to factors such as wear and tear, obsolescence, or passage of time.
Accounting Journal Entries for Depriciation
The journal entries for depreciation involves recording the periodic depreciation expense and reducing the value of the corresponding asset. Here’s an example of a journal entry for depreciation:
| Date | Particulars | Debit | Credit |
|---|---|---|---|
31/03/20XX |
Depreciation Expenses a/c (Expense Account) |
XXXX | |
31/03/20XX |
Accumulated Depreciation a/c (Contra-asset Account) |
XXXX |
Let’s say we have a company that owns a vehicle with an initial cost of $20,000 and an estimated useful life of 5 years.
The company decides to use the straight-line method to depreciate the vehicle evenly over its useful life.
Assuming the depreciation expense for the current period is $4,000, the journal entry would be as follows:
| Date | Particulars | Debit | Credit |
|---|---|---|---|
31/03/20XX |
Depreciation Expenses a/c |
$4,000 | |
31/03/20XX |
Accumulated Depreciation a/c |
$4,000 |
In this journal entry, the Depreciation Expense account is debited to recognize the expense incurred during the period.
The Accumulated Depreciation account, which is a contra-asset account, is credited to accumulate the total depreciation expense over time.
The credit to Accumulated Depreciation reduces the carrying value of the asset on the balance sheet.
It’s important to note that the specific accounts used for depreciation may vary depending on the company’s chart of accounts and accounting practices.
Additionally, different depreciation methods, such as the declining balance method or units of production method, may require adjustments to the journal entry.
Consulting with an accounting professional or referring to the company’s specific accounting policies is recommended for accurate and appropriate depreciation recording
