Depreciation expense journal entry is Depreciation Account Debit and Fixed Asset Account Credit. Depreciation is the process of allocating the cost of a tangible fixed asset over its useful life. Depreciation expense is recorded to reflect the wear and tear, deterioration, or obsolescence of the asset over time.
Depreciation Methods
Before diving into the journal entries, it’s essential to understand that depreciation can be calculated using various methods, such as:
- Straight-Line Method: The most common method where the same amount of depreciation is charged every year.
- Declining Balance Method: A higher depreciation expense is recorded in the earlier years, which decreases over time.
- Units of Production Method: Depreciation is based on the actual usage of the asset.
Journal Entry for Depreciation
Let’s assume that your company uses the Straight-Line Method for depreciation. Below are examples of journal entries for different types of assets.
1. Depreciation on Office Equipment
Example 1: Depreciating Office Equipment
Your business purchased office equipment worth $15,000 on January 1, 2024. The equipment has a useful life of 5 years, with no salvage value. The annual depreciation expense would be $3,000.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Depreciation Expense | 3,000 | |
| 12-31-2024 | To Accumulated Depreciation-Office Equipment | 3,000 |
Explanation:
- Depreciation Expense will debited to recognize the expense for the year.
- Accumulated Depreciation Office Equipment will credited to reflect the accumulated depreciation on the balance sheet, reducing the book value of the asset.
2. Depreciation on a Building
Example 2: Depreciating a Building
Your business purchased a building for $200,000 on January 1, 2024. The building has a useful life of 20 years, with no salvage value. The annual depreciation expense would be $10,000.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Depreciation Expense – Building | 10,000 | |
| 12-31-2024 | To Accumulated Depreciation | 10,000 |
Explanation:
- Depreciation Expense – Building will debited to record the annual depreciation on the building.
- Accumulated Depreciation will credited to accumulate the depreciation on the building over time.
3. Depreciation on a Vehicle
Example 3: Depreciating a Vehicle
Your business purchased a delivery van for $30,000 on January 1, 2024. The van has a useful life of 5 years, with no salvage value. The annual depreciation expense would be $6,000.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Depreciation Expense – Vehicle | 6,000 | |
| 12-31-2024 | To Accumulated Depreciation Vehicle | 6,000 |
Explanation:
- Depreciation Expense – Vehicle will debited to reflect the cost of using the vehicle during the year.
- Accumulated Depreciation will credited to reduce the vehicle’s book value on the balance sheet.
4. Depreciation on Machinery
Example 4: Depreciating Machinery
Your business purchased machinery for $50,000 on January 1, 2024. The machinery has a useful life of 10 years, with no salvage value. The annual depreciation expense would be $5,000.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Depreciation Expense – Machinery | 5,000 | |
| 12-31-2024 | To Accumulated Depreciation | 5,000 |
Explanation:
- Depreciation Expense – Machinery will debited to allocate the cost of the machinery over its useful life.
- Accumulated Depreciation will credited to accumulate the depreciation, reducing the book value of the machinery.
These entries ensure that the depreciation expense is properly recorded on the income statement, and the corresponding accumulated depreciation is reflected on the balance sheet, reducing the asset’s carrying value over time.