Depreciation Expense Meaning And Explanation With Example

It is the estimated cost of Fixed Assets / Tangible Non Current Assets charged to expense during the Current Accounting Period. Depreciation Expense T Account or Ledger is prepared for recording Depreciation Expense Journal Entry and it is closed by transferring to Income Statement / Profit And Loss Account at the end of Accounting Period and hence it has no Balance.

You may also be Find, “Accumulated Depreciation”

Depreciation Expense Journal Entry

During the Accounting Period, it is charged on Fixed Assets by applying Depreciation Rate under selected Depreciation Method during the Useful Life of Fixed Assets. The Accounting Journal Entry to Record it in the Journal of Business is shown below:

                     Depreciation Expense a/c    XXX

                                                           Accumulated Depreciation a/c    XXX

(Depreciation on Fixed Charged To Expense For The Year)

For example, if the company is using Straight Line Method and Charge Depreciation on Plant & Machinery costing Rs. 50000, having Useful Life of 10 Years with Depreciation Rate is 10%, then depreciation expense is recorded as shown below:

   Depreciation Expense a/c - Plant & Machinery 5000 (50000 X 10% X 12/12)

                                         Accumulated Depreciation a/c - Plant & Machinery 5000

(Depreciation on Plant & Machinery is Recorded For The Year)

This Depreciation Expense of Rs. 5000 is recorded in Income Statement as an Expense.

So, Depreciation Expense is the estimated cost of Tangible Non Current Assets during the Current Accounting Period.