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) | XXX | |
| Cash / bank | XXX |
2) Purchase a fixed asset (on credit)
| Account | Debit | Credit |
|---|---|---|
| PPE | XXX | |
| Accounts payable (or asset financing payable) | XXX |
3) Record monthly depreciation
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | XX | |
| Accumulated depreciation | XX |
4) Year-end catch-up adjustment (if needed)
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | XX | |
| Accumulated depreciation | XX |
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 / bank (proceeds) | XX | |
| Accumulated depreciation | XX | |
| PPE (cost) | XXX | |
| Gain on disposal (if any) / Loss on disposal (if any) | (plug) | (plug) |
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 | ||
|---|---|---|
| Depreciation expense | $1,000 | |
| Accumulated depreciation | $1,000 |
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.
