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 add 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 to the company’s books of accounts. Show
Recording Journal Entry of Accumulated DepreciationAt the end of every year, fixed 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 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 are required to show the cost and the related accumulated depreciation of the fixed asset in the financial 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. The depreciation expenses account is debited, and the accumulated depreciation account is credited to record such depreciation on the fixed assets in the company’s books of accounts. The entry to record accumulated depreciation is as below:
Now, when the company sells or disposes of the asset, this balance of the accumulated depreciation accountDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more will be written off along with the asset’s cost. The entry to record the same is as follows:
Example of Accumulated Depreciation Journal EntryThere is a company, A ltd having the plant and machinery. Using the straight-line methodStraight Line Depreciation Method is one of the most popular methods of depreciation where the asset uniformly depreciates over its useful life and the cost of the asset is evenly spread over its useful and functional life. read more, the company charges depreciation of $1,000,000 in the books of accounts every year. 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, the company made no purchases and sales concerning its plant and machinery. 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 company’s depreciation expense for the current year is $1,000,000 as per the straight-line method. In the year, the company made no purchases and sales 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: AdvantagesThe different advantages related to the accumulated depreciation journal entry are as follows:
DisadvantagesThe different disadvantages related to the accumulated depreciation journal entry are as follows:
Important PointsThe different important points are as follows:
ConclusionThey credit the accumulated depreciation account every year with the yearly depreciation figure, the balance of which is shown in the company’s financial statements. Thus the accumulated depreciation journal entries are recorded in the company’s books of accounts when the depreciation expenses account is debited, and the accumulated depreciation account will be credited. By this, the company gets to know the total depreciation expense charged by the company on its assets since its purchase, thereby helping the concerned person keep track of the same. Recommended ArticlesThis 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 –
Which of the following accounts is related to accumulated depreciation?Accumulated depreciation appears in a contra asset account on the balance sheet reducing the gross amount of fixed assets reported.
Where does accumulated depreciation recorded?Accumulated depreciation is reported on the balance sheet as a contra asset that reduces the net book value of the capital asset section.
How are accumulated depreciation and depreciation expense related?Depreciation expense is the amount that a company's assets are depreciated for a single period (e.g, quarter or the year), while accumulated depreciation is the total amount of wear to date. Depreciation expense is not an asset and accumulated depreciation is not an expense.
What type of account is accumulated depreciation equipment?Accumulated depreciation is an asset account with a credit balance known as a long-term contra asset account that is reported on the balance sheet under the heading Property, Plant and Equipment.
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