In accounting, each asset begins to decline in value over time. This reduction in value is known as depreciation. When the business accounts for this loss, they make a particular accounting note called the depreciation journal entry. This entry helps in showing the correct value of the asset and records the cost of using the asset for a business. In accounting, the journal entry for depreciation includes debiting the depreciation expense and crediting the accumulated depreciation account. This needs to be accounted for on a periodic basis to accurately reflect the value of your fixed assets like machinery, equipment and vehicles. The article elaborates on the definition and types with practical examples of this journal entry.
What is Depreciation?
Since the depreciation journal entry is a fundamental concept in financial accounting. All businesses have assets like machines, furniture or buildings. With time these assets become obsolete or less functional. This causes the worth of the asset to decline. The falling in value is depreciation. An entry in a depreciation journal reflects this drop in value. The primary reason for this is to ensure that the cost of the asset is aligned with the income that it generates for the business.
What is Journal Entry For Depreciation?
A depreciation accounting entry is used by the business to record depreciation. The opposite of the above in this entry is that the depreciation expense account gets debited. This indicates that the business incurs an expense due to the use of the asset. The accumulated depreciation account is also credited at the time. This account reflects the overall reduction in value of the asset over time. This is what your entry will look like:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 31-03-2025 | Depreciation Expense A/c | 10,000 | |
| To Accumulated Depreciation A/c | 10,000 | ||
| (Being depreciation recorded on machinery) | |||
Importance of Depreciation Journal entry
This record benefits the business in numerous ways. It reflects the actual value of the asset. It also corrects the income statement since it reflects the cost of the asset’s service. If a business fails to pass the journal entry of depreciation, it will have more profit on its books than it actually earned. It also helps ensure that revenue and expenses are matched correctly, which is a fundamental principle of accounting.
- Depreciation Expense Entry: The cost of using an asset for a year It shows in the P&L.
- Accumulted Depreciation Account Journal Entry: This account gathers all the depreciation calculated during the years.
- Provision for Depreciation Journal Entry: In certain cases, a business may maintain a dedicated account for depreciation. The second reserve is called the provision account.
Thus depreciation journal entry makes the accounting records more accurate and also follows the matching principle of accounting.
Types of Depreciation Journal Entry
The depreciation can be applied by the businesses in various ways as per their requirements. There are several types of a depreciation journal entry which depends on how the business wants to write off the value of the asset. Just they all utilize the same format, the quantity varies according to the way. This article will discuss the more common types with a journal entry example for each depreciation type.
Straight Line Method (SLM)
This is the simplest method. Under this approach, an equal amount of depreciation is recognized each year.
Let’s take an example:
- Cost of machinery: ₹1,00,000
- Life of asset: 5 years
- Annual depreciation: ₹1,00,000 ÷ 5 = ₹20,000
Journal Entry
| Date | Particulars | Debit (₹) | Credit (₹) |
| 31-03-2025 | Depreciation Expense A/c | 20,000 | |
| To Accumulated Depreciation A/c | 20,000 |
This is a simple machinery depreciation journal entry using the straight-line method.
WDV Method (Written Down Value Method)
With this method, the depreciation on the asset is calculated each year on the reduced value of the asset.
Example
- Cost of machinery: ₹1,00,000
- Rate of depreciation: 20%
Year 1
Depreciation = ₹1,00,000 × 20% = ₹20,000
Thus, the book value after Year 1 = ₹80,000.
Journal Entry:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 31-03-2025 | Depreciation Expense A/c | 20,000 | |
| To Accumulated Depreciation A/c | 20,000 |
Year 2:
Depreciation = ₹80,000 × 20% = ₹ 16,000
Book value = ₹64,000
That’s why it gives more depreciation in the first year.
Journal Entry for Provision for Depreciation
Certain businesses will not write down the value of the asset directly. They do a provision account. This maintains the asset value in the books while recording the depreciation separately.
Entry:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 31-03-2025 | Depreciation Expense A/c | 15,000 | |
| To Provision for Depreciation A/c | 15,000 |
This also allows you to keep track of original asset cost and depreciation separately.
End-of-Year Depreciation Adjustments
Depreciation may be adjusted if the asset is utilized for only a couple of months. If, say, the machine is purchased on 1st October and the year ends on 31st March, the depreciation will be charged only for a 6 month period.
- Annual Depreciation: ₹24,000
- Depreciation after 6 months: ₹12,000
Entry:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 31-03-2025 | Depreciation Expense A/c | 12,000 | |
| To Accumulated Depreciation A/c | 12,000 |
Therefore, you need to select the right way of passing the correct type of depreciation journal entry example.
Depreciation Journal Entry With Example in Tally Software
It is widely used accounting software for running businesses. You can also pass depreciation entry in Tally in an easy way. Helps keep proper records and automatically generates reports. Now in this article, we will discuss about how to pass depreciation journal entry in Tally in easy steps.
How to Enter Depreciation in Tally?
Firstly, ensure the accounts are created as ledger accounts. You need two ledgers:
- Depreciation (Indirect Expense Group)
- (Afixed Assets or Provision Group) Accumulated Depreciation
Now follow these steps:
- Open Tally must go to Accounting Vouchers.
- Press F7 to select Journal Voucher.
- Select “Depreciation” in the Dr. column.
- Input the depreciation amount
- In the Cr. Select “Accumulated Depreciation” or “Provision for Depreciation”. For example, “Depreciation charged for the year ending 31-03-2025”.
- Save the entry.
Example of Depreciation Entry on Tally
| Particulars | Dr (₹) | Cr (₹) |
| Depreciation A/c | 10,000 | |
| To Accumulated Depreciation A/c | 10,000 |
(As the depreciation recorded on machinery)
We call this the double entry on depreciation. Also, it is based on the double entry accounting system. This entry of depreciation updates both the ledgers and reports accurately on tally.
Why Tally Makes it Easy?
Tally displays depreciation as a direct entry in the profit and loss account under indirect expenses. It also makes an adjustment to the net book value of the fixed asset to account for accumulated depreciation. This maintains a clean, correct balance sheet.
Different methods can be used such as Straight Line & Written Down Value in Tally. It also offers journal entry for depreciation using partial periods. Thus, such a process is automatic and error-free in Tally. All Tally users must pass this entry correctly to keep true financial books.
Relevance to ACCA Syllabus
Depreciation accounting is an important topic under the Financial Reporting (FR) paper in the ACCA syllabus. It specifically covers IAS 16 – Property, Plant and Equipment, and teaching students how to classify the cost of a tangible asset over its useful life. Knowing how to create journals of depreciation entry ensures appropriately recorded financial statements, which is an essential requirement for compliance with international financial reporting standards (IFRS).
Depreciation Journal Entry ACCA Questions
Q1. Which IFRS prescribes the accounting treatment for depreciation of tangible assets?
A) IFRS 13
B) IAS 2
C) IAS 16
D) IFRS 9
Answer: C) IAS 16
Q2. Which one of the journal entries will be correct for depreciation of a machine purchasing price of $50,000 having the accumulated depreciation of $10,000 at year-end?
A) Depreciation Expense A/c Dr 50,000; To Machine A/c 50,000
B) Machine A/c Dr 10,000; To Accumulated Depreciation A/c 10,000
C) Depreciation Exp A/c Dr 10,000; To Accumulated Depreciation A/c 10,000
D)A/c Dr 10,000 ——-; To A/c 10,000
Answer: C) Depreciation Expense A/c Dr 10,000; To Accumulated Depreciation A/c 10,000
Q3. Which of the following does depreciation help a process of matching?
A) Assets with liabilities
B) Revenues with expenses
C) Cash flow with income
D) Profit with tax
Ans: B) Revenues with expenses
Q4. What method allocates the cost of an asset over its useful life evenly?
A) Units of production
B) Double declining balance
C) Straight-line method
D) Sum of years’ digits
Ans: C) Straight-line method
Q5. What is the meaning of accumulated depreciation in financial statements?
A) Liability
B) Contra asset
C) Expense
D) Equity
Answer: B) Contra asset
Relevance to US CMA Syllabus
Depreciation accounting is included under “External Financial Reporting Decisions” in Part 1 of the CMA syllabus. It is critical for valuing fixed assets and assessing periodic expenditures. The depreciation journal entry is essential for CMA candidates to evaluate the accuracy of financial reporting and its influence on income and asset values.
Journal Entry for Depreciation CMA Questions
Q1. What is the depreciation method that gives the highest expense in the first few years?
A) Straight-line
B) Declining balance
C) Units of production
D) MACRS
Answer: B) Declining balance
Q2. What impacts does a depreciation journal entry have on the income statement?
A) Increases revenue
B) Decreases net income
C) Increases net income
D) Has no effect
Ans: B) Decreases net income
Q3. Why do we need to record depreciation in the first place?
A) Increase net assets
B) Match cost with revenue
C) Determine resale value
D) Calculate tax liability
Answer : B) Costs to be matched with revenue
Q4. A depreciation entry on the following is correct under straight-line method?
A) Transfer of Depreciation from Accumulated A/c to Cash A/c
B) Dr Depreciation Expense A/c; Cr Accumulated Depreciation A/c
C) Depreciation Expense A/c Dr; To Asset A/c
Debit side: Cash A/c Dr; Credit side: To Depreciation Expense A/c
Answer: b) Depreciation expense a/c dr; to accumulated depreciation a/c
Q5. 13-1 U.S. GAAP: Depreciation Depreciation under U.S. GAAP is:
A) Optional for fixed assets
B) Not all leased assets have this requirement
C) Generally needed for physical long-lived assets
D) Not allowed for financial statement.
Ans: C) Generally needed for physical long-lived assets
Relevance to US CPA Syllabus
Depreciation is one of the most important topics in the FAR (Financial Accounting and Reporting) section of the CPA exam. Recording and calculating depreciation is an important concept CPA candidates need to master to help discover accurate asset values, aiding in true financial statements. Recording the depreciation journal entry is to follow the matching principles and meet the standards of U.S. GAAP as well.
Depreciation Journal Entry CPAs Questions
Q1. U.S. GAAP: What is the Journal Entry to Record Depreciation Expense?
A) Asset A/c Dr; To Depreciation A/c
B) Depreciation Expense A/c Dr; To Asset A/c
C) Depreciation Expense A/c Dr; Accumulated Depreciation A/c
D) Depreciation Expense A/c Dr; To Accumulated Depreciation A/c
Solution: C) Depreciation Expense A/c Dr; To Accumulated Depreciation A/c
Q2. What factors influence the amount of yearly depreciation?
A) Market value of the asset
B) Useful life and scrap value
C) Interest rate
D) Number of shareholders
Ans: B) Useful life and salvage value
Q3. Which of the following assets are depreciated under U.S. GAAP?
A) Land
B) Intangible assets
C) Buildings
D) Goodwill
Answer: C) Buildings
Q4. What kind of account is “Accumulated Depreciation”?
A) Asset
B) Liability
C) Expense
D) Contra asset
Answer: D) Contra asset
Q5. Which of the following does depreciation do to an asset’s book value?
A) Increases it
B) Doubles it
C) Reduces it
D) Has no effect
Answer: C) Reduces it
Relevance to CFA Syllabus
Depreciation is a common topic in the CFA Program as well — the CFA Institute covers depreciation as part of Financial Reporting and Analysis (FRA) in Level I, which illustrates how depreciation affects asset valuation, income, cash flows, and ratios. Knowledge of the depreciation journal entry allows CFA candidates to accrue company performance from real financial statements and IFRS/GAAP-adhering accounting methods.
Depreciation Journal Entry CFA Questions
Q1. What depreciation method has depreciation expense high in the early years?
A) Straight-line
B) Units of production
C) Declining balance
D) None of the above
Answer: C) Declining balance
Q2. How does depreciation affect cash flows from operating activities under the indirect method?
A) Decreases it
B) Increases it
C) No impact
D) Moves it to investing activities
Answer: B) Increases it
Q3. Which of the following statements is true?
A)Depreciation is a cash outflow
B) Financing activities record depreciation
C) Depreciation lowers taxable income
D) Depreciation has a direct impact on equity
The answer is C) Depreciation reduces taxable income
Q4. How does the overestimating of an asset’s useful life affect the results?
A) Understates net income
B) Exaggerates depreciation expense
C) Understates depreciation expense
D) Overstates liabilities
Ans: C) Understates depreciation expense
Q5. Which ratio is influenced by depreciation expense in finance?
A) Gross Margin
B) Net Profit Margin
C) Inventory Turnover
D) Current Ratio
Answer: B) Net Profit Margin
