JOURNAL ENTRIES FOR DEPRICIATION

JOURNAL ENTRIES FOR DEPRICIATION

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“Understanding depreciation in accounting becomes easier when you explore practical journal entry examples. Depreciation represents the reduction in the value of a fixed asset over time. The fundamental journal entry for depreciation involves debiting the Depreciation Account and crediting the specific Fixed Asset Account.

 

Here are various journal entry examples illustrating different scenarios related to depreciation, all following the double entry accounting system:

 

  1. Purchasing Machinery on June 1, 2022, at Rs. 12,000 with a 15% Depreciation Rate:

 

  1. a) Debit the Depreciation Account as it represents a business loss.

  

  1. b) Credit the Machinery (Fixed Asset) Account as the asset’s value decreases.

  

  

   Depreciation Account Debit 1,800

   Machinery Account Credit 1,800

  

 

  1. Selling the Same Machinery on September 30, 2024, at Rs. 6,000:

 

  1. a) Continue with the same entry until September 30, 2023.

  

  1. b) For the new year:

  

Debit the Depreciation Account for Rs. 2,700 (Calculated as: Rs. 12,000  Rs. 1,800 (previous year’s depreciation)  15%  12/12).

     

       Credit the Machinery Account for Rs. 2,700.

  

  1. Transferring Rs. 15,000 Depreciation to Profit and Loss Account on December 31, 2024:

 

  1. a) Debit the Profit and Loss Account to record expenses and losses, closing out these accounts.

  

  1. b) Credit the Depreciation Account to close it; this entry is part of the yearend account closing process.

  

  

   Profit and Loss Account Debit 15,000

   Depreciation Account Credit 15,000

  

 

  1. Maintaining a Provision for Depreciation Account on March 1, 2023:

 

  1. a) Debit the Depreciation Account for the loss.

  

  1. b) Credit the Provision for Depreciation Account to show it as a liability.

  

  

   Depreciation Account Debit 2,000

   Provision for Depreciation Account Credit 2,000

  

 

  1. Transferring All Depreciation to Accumulated Depreciation Account on January 1, 2025:

 

  1. a) Debit the Depreciation Account for the loss.

  

  1. b) Credit the Accumulated Depreciation Account, treating it as a contra account to maintain historical asset costs.

  

  

   Depreciation Account Debit 2,500

   Accumulated Depreciation Account Credit 2,500

  

 

  1. Selling a Car on May 10, 2023, for Rs. 8,000 with Rs. 4,000 Accumulated Depreciation and an Original Cost of Rs. 12,000:

 

  1. a) Debit the Cash Account as cash enters the business.

  

  1. b) Debit the Accumulated Depreciation Account as the liability decreases.

  

  1. c) Debit the Profit and Loss Account to record the loss on the car sale.

  

  1. d) Credit the Car Account to remove it from the business.

  

  

   Cash Account Debit 8,000

   Accumulated Depreciation Account Debit 4,000

   Profit and Loss Account Debit 4,000

   Car Account Credit 12,000

  

 

  1. Annual Depreciation on a Lease of Rs. 50,000 with a 7% Interest Rate on April 1, 2023:

 

  1. a) Debit the Depreciation Account to record the loss.

  

  1. b) Credit the Depreciation Fund Account to transfer depreciation amounts, as depreciation decreases profits.

  

  

   Depreciation Account Debit 3,500

   Depreciation Fund Account Credit 3,500

  

 

   (This entry will be repeated annually for five years.)

 

    When investing the Depreciation Fund on April 1, 2023:

  

  1. a) Debit the Depreciation Fund Investment Account.

  

  1. b) Credit the Cash Account.

  

  

   Depreciation Fund Investment Account Debit 3,500

   Cash Account Credit 3,500

  

 

   (This entry will be repeated annually for five years.)

 

    When receiving interest on Depreciation Fund Investment on April 1, 2024:

  

  1. a) Debit the Bank or Cash Account.

  

  1. b) Credit the Interest on Depreciation Fund Investment Account.

  

  

   Bank Account Debit 245 (Rs. 3,500  7%)

   Interest on Depreciation Fund Investment Account Credit 245

  

 

  1. Selling and Renewing Depreciation Fund Investments on March 20, 2027:

 

    When selling Depreciation Fund Investment:

  

  1. a) Debit the Cash Account.

  

  1. b) Credit the Depreciation Fund Investment Account.

  

  

   Cash Account Debit 31,205

   Depreciation Fund Investment Account Credit 31,205

  

 

    When transferring the Profit on Sale to the Depreciation Fund Account:

  

  1. a) Debit the Depreciation Fund Investment Account.

  

  1. b) Credit the Depreciation Fund Account or Profit and Loss Account.

  

   (This entry is made for balance adjustment.)

 

  1. Selling Property Fully Depreciated Over Seven Years on August 15, 2026, for Rs. 2,000:

 

No depreciation entry is required since the property is fully depreciated. Only profit is recorded.

  

  

   Cash Account Debit 2,000

   Profit and Loss Account Credit 2,000

  

 

  1. Providing Depreciation of Rs. 25,000 on Factory Machine on February 15, 2023:

 

  1. a) Debit the Manufacturing Account to include all production related expenses.

   

  1. b) Debit the Depreciation Account to close it, as it’s part of production expenses.

   

   

    Manufacturing Account Debit 25,000

    Depreciation on Factory Machine Debit 25,000

 

These journal entry examples should provide clarity on handling depreciation in various scenarios with different dates.

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