Skip to main content

What is Depreciation and Accumulated Depreciation with Example of Journal Entries


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


Comments

Popular posts from this blog

Intercompany Eliminations with Journal Entries

Intercompany Eliminations Explained intercompany eliminations happen for business combinations. The whole thing kind of confuses me. Can you explain the process and the journal entries to record the intercompany eliminations? Answer: Remember that in a business combination, we are trying to eliminate any transactions between the parent and the subsidiary so that we only have transactions with 3rd parties left after our consolidating entries. So, let’s assume Company A owns Company B and A sells $120,000 of inventory to B. Let’s also assume that Company A gets a 40% margin on all sales and Company B has 30% of the inventory remaining at the end of the year. With this set of facts, they could ask you a wide variety of questions on the CPA exam. One of the tricks to solving problems involving intercompany eliminations is to understand the entries that A and B would book in these cases. One of the other tricks is understanding the relationship between cost and margin percentage.

Procure to Pay (P2P) Process Folow with Journal Entries

Procure to Pay process flow. 1. Requester: Request for goods & the same goes for an approval 2. PR is created & routed for approval 3. Once approved, PO is created. 4. Sourcing activities like, Choosing the right Vendor, Payment info happens meanwhile, 5. PO is routed for approval 6. PO is sent to the supplier.& Vendor signs the agreement (Payment terms) 7. Supplier will send the goods along with Invoice.(PO Number mentioned) 8. Good received & GRN entry is made. 9. Invoice is sent to the AP team 10. AP team process the Invoice (3 way match) - GL coding will be automatically pulled. 11. process for Payment Few Journal Entries examples are as followed. 1. Goods Received Ware House Dr        Inventory a/c             Cr                    GRNI a/c 2. Inv. Register in our system Dr        RI a/c Cr                    Trade a/c 3. Receipts Matched/Approved Dr        GRNI a/c Cr                    RI a/c 4. Inv. Pa

End to End Journal Entries for Purchase Orders

  Creating end-to-end journal entries for purchase orders involves recording the financial transactions associated with the entire procurement process. Here's a step-by-step breakdown of journal entries related to the purchase order process: 1. Request for Purchase: When a department identifies the need for goods or services and generates a Request for Purchase (RFP) or Purchase Requisition, no financial transactions are recorded at this stage. 2. Vendor Selection and Quotation Comparison: No financial transactions are recorded during the vendor selection or quotation comparison stage. 3. Purchase Order Creation: Once the Purchase Order is created and approved internally, the following journal entry is made: Copy code Debit: Purchase Order Liability Credit: Accounts Payable This entry recognizes the commitment to pay the vendor for the goods or services ordered. 4. Sending the Purchase Order: When the approved Purchase Order is sent to the vendor, there is no financial transacti