Accumulated depreciation Journal Entry is Depreciation Expense Account Debit and Accumulated Depreciation Account Credit. The total depreciation expense that has been recorded for an asset since it was acquired. It is a contra-asset account, meaning it offsets the value of the related asset on the balance sheet.
Example Scenario
Let’s assume a company purchased machinery for ₹500,000 on 01-01-2024. The company uses the straight-line method to depreciate the machinery over 10 years with no residual value. The annual depreciation expense would be ₹50,000.
Initial Journal Entry to Record Annual Depreciation
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-12-2024 | Depreciation Expense | 50,000 | Annual depreciation expense | |
| 31-12-2024 | To Accumulated Depreciation/ Fixed Asset | 50,000 | Depreciation on machinery |
Explanation:
- Depreciation Expense Account Debit: Increases the expense account, representing the cost of using the machinery for the year.
- To Accumulated Depreciation Account Credit: Increases the accumulated depreciation account, which offsets the machinery’s value on the balance sheet.
Balance Sheet Presentation
After recording the annual depreciation, the machinery’s net book value on the balance sheet is calculated as follows:
- Machinery (original cost): ₹500,000
- Less: Accumulated Depreciation: ₹50,000
- Net Book Value: ₹450,000
Continuing Depreciation
In subsequent years, similar entries will be made at the end of each year for recording the depreciation expense and update the accumulated depreciation account.
Example for Second Year (31-12-2025)
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-12-2025 | Depreciation Expense | 50,000 | Annual depreciation expense | |
| 31-12-2025 | To Accumulated Depreciation | 50,000 | Depreciation on machinery |
Explanation:
- The process is repeated each and every year for recording of accumulated depreciation account, adding ₹50,000 to the accumulated depreciation account.
Summary
- Depreciation Expense: Recorded periodically to reflect the cost of using the asset over its useful life.
- Accumulated Depreciation: A contra-asset account that accumulates the total depreciation expense over the asset’s life, reducing the net book value of the asset on the balance sheet.
Recording accumulated depreciation account accurately ensures the financial statements provide a realistic view and clear View of an asset’s value and the cost of its usage over time.