Depreciation is the expense therefore we need to decrease in
the value of any fixed asset.
The reduction in value of an asset due to normal usage, wear
and tear, new technology or unfavorable market conditions is called
Depreciation. Assets such as plant and machinery, buildings, vehicles etc.
which are expected to last more than one year, but not for the infinity are
subject to depreciation.
Example :- Journal entry for depreciation
Depreciation
A/C Debit
To Asset A/C Credit
(Assuming no provision is maintained)
Rules applied in the above journal entry
•
Depreciation – Nominal Account – Dr. All expenses
& losses
•
Asset – Real Account – Cr. What goes out
Transfer the Depreciation into Profit & Loss Account
Profit
& Loss A/C Debit
To Depreciation A/C Credit
Example :- You sell the Car at Rs. 5,00,000. Its accumulated
depreciation is Rs. 50,000. Its original cost is Rs. 600000.
a) cash account will be debited because cash comes in the
business. Everything which comes in the business will be debit under second
rule of double entry system.
b) Accumulated depreciation account will be debit because
with this, liability will decrease. Accumulated depreciation was our liability.
c) Profit and loss account will be debit because this is the
loss on sale car.
d) Original Cost of car will be credit because car goes from
business.
Cash Account
500000 Debit
Accumulated
Depreciation Account 50000 Debit
Profit and
Loss Account 50000 Debit
Car Account 600000 Credit
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