Accounting Entry for Depreciation

The accounting entry for depreciation is used to allocate the cost of an asset over its useful life. Depreciation is recorded as an expense on the income statement and reduces the value of the asset on the balance sheet.

The general journal entry for depreciation typically includes the following accounts:

1. Depreciation Expense account: This is an expense account that represents the portion of the asset's value that is being allocated as depreciation. 2. Accumulated Depreciation account: This is a contra-asset account that shows the total depreciation accumulated over the asset's useful life. It is subtracted from the original cost of the asset to determine its net book value. 3. Asset account: This represents the original cost of the asset and is usually a separate account specific to the asset being depreciated.

The accounting entry for depreciation is as follows:

Debit Depreciation Expense account Credit Accumulated Depreciation account

Let's take an example to illustrate the accounting entry for depreciation:

Suppose a company purchases machinery for $10,000 with an estimated useful life of 5 years and no salvage value. The annual depreciation expense would be $2,000 ($10,000 divided by 5 years). After the first year of usage, the depreciation entry would be: Debit Depreciation Expense account: $2,000 Credit Accumulated Depreciation account: $2,000 This entry reduces the net book value of the machinery on the balance sheet by $2,000 and records $2,000 as an expense on the income statement.