Accumulated Depreciation Journal Entry

Accumulated Depreciation Journal Entry Meaning

An accumulated depreciation journal entry is the journal entry passed by the company at the end of the year. It is done to adjust the book values of the different capital assets of the company and adding the depreciation expense of the current year to the accumulated depreciation account where the depreciation expenses account will be debited. The accumulated depreciation account will be credited in the books of accounts of the company.

Recording Journal Entry of Accumulated Depreciation

At the end of every year, fixed assets of the companyFixed Assets Of The CompanyFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more are depreciated by charging the depreciation expenses. This depreciation expense adds the balance of the accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.read more account. It does not directly credit the cost of the respective asset because, as per the requirement of the accounting standards, companies require to show the cost as well as the related accumulated depreciation of the fixed asset in the financial statements of the companyFinancial Statements Of The CompanyFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more.

To record such depreciation on the fixed assets in the books of accounts of the company, depreciation expenses account is debited, and the accumulated depreciation account is credited. The entry to record accumulated depreciation is as below:

Particulars Dr ($)Cr ($)
Depreciation Expense A/C …..DrXXX 
           To Accumulated Depreciation A/C XXX

Now, when the company sells or disposes of the asset, then this balance of the accumulated depreciation account will be written off along with the cost of the asset. The entry to record the same is as follows:

Particulars Dr ($)Cr ($)
Particulars Dr ($)Cr ($)
Accumulated Depreciation A/C …..DrXXX 
           To  Asset A/C XXX

Example of Accumulated Depreciation Journal Entry

There is a company, A ltd having the plant and machinery. At the beginning of the accounting year 2018, the balance of the plant and machinery account was $7,000,000, and the balance of the accumulated depreciation account was $3,000,000. During the year, no purchases and sales were made by the company concerning its plant and machinery. Using the straight-line method every year company charges depreciation of $1,000,000 in the books of accounts.

Pass the necessary journal entry in the company’s books of accounts to record the depreciation and accumulated depreciation at the end of the accounting year 2018?

Solution:https://www.wallstreetmojo.com/straight-line-depreciation-method-formula/

The depreciation expense of the company for the current year is $1,000,000 as per the straight-line method. In the year there were no purchases and sales were made by the company concerning its plant and machinery, so no adjustments are required to be made. At the end of the accounting year entry to record the depreciation and accumulated depreciation is as follows:

Example

Advantages

The different advantages related to the accumulated depreciation journal entry are as follows:

  • It helps in recording all the transactions involving the depreciation of all of the fixed assets of the company thereby keeping track of the same;
  • The accumulated depreciation journal entry credits the accumulated depreciation account every year with the yearly depreciation figure, the balance of which is shown in the financial statements of the company. This company can get to know the amount of the total depreciation expense which already has been charged by the company on its assets since its purchase date;

Disadvantages

The different disadvantages related to the accumulated depreciation journal entry are as follows:

  • For the companies having a large number of assets, it becomes time-consuming to record every entry related to the accumulated depreciation.
  • As there is the involvement of the humans for recording the accumulated depreciation journal entry, there are chances of error in it.

Important Points

The different important points are as follows:

Conclusion

Thus the accumulated depreciation journal entries are recorded in the company’s books of accounts when depreciation expenses account will be debited, and the accumulated depreciation account will be credited. They credit the accumulated depreciation account every year with the yearly depreciation figure, the balance of which is shown in the financial statements of the company. By this, the company gets to know the total depreciation expense which has been charged by the company on its assets since its purchase, thereby helping the concerned person in keeping track of the same.

This article has been a guide to an accumulated depreciation journal entry and its definition. Here we discuss the journal entry to record accumulated depreciation along with an example and its advantages & disadvantages. You can learn more about from the accounting following articles –

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