How to Record a Depreciation Journal Entry

To record depreciation, you must adjust two specific ledger accounts:

• Depreciation Expense Account: This is an Expense account. It records the loss for the current year. (Since expenses increase on the debit side, this account will be Debited).
• Accumulated Depreciation Account: This is a 'Contra-Asset' account. Instead of directly reducing the value of the main 'Machine Account', we collect all the depreciation over the years in this account. (Since contra-assets increase on the credit side, this account will be Credited).

At the end of the accounting period, the standard adjusting entry looks like this:

Debit: Depreciation Expense A/c ..... (Amount) Credit: Accumulated Depreciation A/c ..... (Amount)

(Narration: Being depreciation charged on fixed asset for the year).

• Scenario: ABC Company bought a delivery truck for $50,000. They calculate that the truck loses $5,000 in value every year.
• The Entry at year-end:
  • Debit: Depreciation Expense A/c ..... $5,000
  • Credit: Accumulated Depreciation (Truck) A/c ..... $5,000
• Impact on Financial Statements: The $5000 expense goes to the Income Statement (lowering the company's taxable profit). The $5000 accumulated depreciation goes to the Balance Sheet, sitting right below the $50,000 Truck asset, reducing its net 'Book Value' to $45,000.