Depreciation Journal Entry

We already studied about Depreciation Definition in our previous article, but here we will record the Accounting Journal Entry For Depreciation in book of Entrepreneur.

When Fixed Assets / Non Current Assets are purchased by the business for Cash or on Credit Basis, then Assets need to be depreciated in order to find its usefulness in the business. So, depreciation method is decided and depreciation is charged on assets per annum within the useful life of assets. For Example, An Office Equipment bought by the business for Rs. 82000, residual value is Rs. 2000, useful life is 5 years, then by applying straight line depreciation method, we get the following Depreciation Expense in the current year as shown below:

Depreciation Expense - Equipment a/c 16000

                                                        Accumulated Depreciation - Equipment a/c 16000

(Depreciation On Office Equipment is Charged To Expense For The Year)

Depreciation is an Expense and it is increasing, we debit it and it is closed to Income Statement or Profit And Loss Account by passing Closing Journal Entries accumulated depreciation is a Contra Asset which is also increasing so we credit it. Accumulated Depreciation is deducted from the Cost of Office Equipment in Balance Sheet Under Non Current Assets Section of Assets Side.

Here:

Depreciation Rate = 1/5 = 20%

Depreciable Cost = Cost - Residual Value / Useful Life

Depreciation Expense = 80000 X 20% = Rs. 16000

So, Accounting Journal Entry for Depreciation helps in recording Depreciation Expense at the End of Accounting Period and such Expense is added to the Accumulated Depreciation of previous years, (if any), of the Fixed Assets / Non Current Assets.