Overview
Quick answer
Depreciation allocates the cost of a fixed asset over its useful life. The common entry is debit Depreciation Expense and credit Accumulated Depreciation each period. When you dispose of the asset, you remove both the asset’s cost and its accumulated depreciation and recognize any gain or loss.
Depreciation — journal entries (quick examples)
1) Purchase a fixed asset (cash)
| Account | Debit | Credit |
|---|---|---|
| Property, plant and equipment (PPE) | Transaction amount | — |
| Cash / bank | — | Transaction amount |
| Total | Total transaction amount | Total transaction amount |
Transaction amount is a symbolic variable used equally for the debit and credit; total debits equal total credits.
2) Purchase a fixed asset (on credit)
| Account | Debit | Credit |
|---|---|---|
| PPE | Transaction amount | — |
| Accounts payable (or asset financing payable) | — | Transaction amount |
| Total | Total transaction amount | Total transaction amount |
Transaction amount is a symbolic variable used equally for the debit and credit; total debits equal total credits.
3) Record monthly depreciation
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | Transaction amount | — |
| Accumulated depreciation | — | Transaction amount |
| Total | Total transaction amount | Total transaction amount |
Transaction amount is a symbolic variable used equally for the debit and credit; total debits equal total credits.
4) Year-end catch-up adjustment (if needed)
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | Transaction amount | — |
| Accumulated depreciation | — | Transaction amount |
| Total | Total transaction amount | Total transaction amount |
Transaction amount is a symbolic variable used equally for the debit and credit; total debits equal total credits.
5) Dispose of an asset (sale) — remove asset + accumulated depreciation
The disposal entry depends on proceeds and carrying amount. A common structure is below.
| Account | Debit | Credit |
|---|---|---|
| Cash or bank | Cash or bank amount | — |
| Accumulated depreciation | Accumulated depreciation amount | — |
| Property, plant and equipment | — | Property, plant and equipment amount |
| Gain on disposal | — | Gain on disposal amount |
| Total | Balanced entry total | Balanced entry total |
Each named amount is a symbolic variable. For a gain, cash proceeds plus accumulated depreciation equals asset cost plus the gain, so total debits equal total credits.
| Account | Debit | Credit |
|---|---|---|
| Cash or bank | Cash or bank amount | — |
| Accumulated depreciation | Accumulated depreciation amount | — |
| Loss on disposal | Loss on disposal amount | — |
| Property, plant and equipment | — | Total transaction amount |
| Total | Balanced entry total | Balanced entry total |
Each named amount is a symbolic variable. For a loss, cash proceeds plus accumulated depreciation plus the loss equals asset cost, so total debits equal total credits.
Table of Contents
What is depreciation?
Depreciation is the systematic allocation of a tangible asset’s cost over the periods that benefit from its use. It does not necessarily reflect market value—rather, it is an accounting allocation based on useful life and residual value assumptions.
Asset purchases
Capitalizable costs are recorded to PPE. The specifics depend on your capitalization policy (for example, whether freight, installation, or testing costs are included).
Monthly depreciation entry
Example
Equipment cost $60,000, useful life 5 years, straight-line, no residual value → monthly depreciation = $60,000 / 60 = $1,000.
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | $1,000 | — |
| Accumulated depreciation | — | $1,000 |
| Total | $1,000 | $1,000 |
The entry records the transaction described immediately above.
Depreciation vs impairment/write-down
Depreciation is planned allocation over time. Impairment (or a write-down) is a separate adjustment when an asset’s carrying amount is not expected to be recoverable. Accounting treatments vary by framework and circumstances.
Disposals (sale, scrap, trade-in)
On disposal, remove the asset’s cost and accumulated depreciation, record proceeds, and recognize the gain or loss as the difference between proceeds and carrying amount.
Fully depreciated assets still in use
If an asset is still in use after being fully depreciated, you typically leave the cost and accumulated depreciation on the books (net book value equals residual value, often zero) and stop recording depreciation.
Depreciation journal entry FAQ
What is the journal entry for depreciation?
Debit depreciation expense and credit accumulated depreciation.
What is accumulated depreciation?
It’s a contra-asset account that tracks total depreciation recorded to date for an asset (or asset class).
Is depreciation a cash expense?
No. Depreciation is non-cash; it allocates a past cash outflow (or obligation) over time.
How do you record an asset sale?
Remove the asset cost and accumulated depreciation, record proceeds, and recognize a gain/loss.
Do you depreciate land?
Typically, land is not depreciated because it generally does not have a finite useful life (subject to specific circumstances).
What if you change useful life or residual value?
Many frameworks treat that as a change in estimate—depreciation is adjusted prospectively based on the new assumptions.
