Recording Depreciation in the Books
- Pass journal entries for depreciation when it is charged to the asset account
- Pass journal entries when a Provision for Depreciation account is kept
- Prepare the asset account, depreciation account and provision account for several years
- Show the asset correctly in the balance sheet under both methods
You can now calculate depreciation. But a number in rough work is not accounting until it is recorded. There are two ways to record it. In the first, we cut the asset account down every year. In the second, we leave the asset account untouched at its cost and collect the depreciation in a separate account called Provision for Depreciation. Both give the same profit; they differ in what the ledger and balance sheet show. Board papers love 6-mark ledger questions from this lesson, so write every account along with me.
1. The common first step: recording the purchase
Whichever method is used, the asset is first recorded at its full cost (price + installation + freight etc.), only in the year of purchase.
Asset A/c Dr. To Bank A/c / Cash A/c / Supplier’s A/c
with the purchase price and, separately or together, with the installation and other costs.
Bought a machine on credit from Ahuja Engineering for ₹1,50,000 on 1 April 2026.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 1 | Machinery A/c Dr. | 1,50,000 | ||
| To Ahuja Engineering’s A/c | 1,50,000 | |||
| (Being machine bought on credit) |
2. Method 1: Charging depreciation to the asset account
Here depreciation is credited to the asset account itself, so the asset account shows a lower balance every year. Two entries are passed at the end of every year:
(a) Depreciation A/c Dr. To Asset A/c (for charging depreciation on the asset)
(b) Profit and Loss A/c Dr. To Depreciation A/c (for transferring depreciation to the Profit and Loss Account)
Balance sheet: the asset appears at its net book value (cost less depreciation till date).
Ahuja Printers of Khurja buys a machine on 1 April 2026 for ₹1,80,000 by cheque and pays ₹20,000 in cash for its installation. Useful life 5 years, net residual value ₹20,000. Depreciation by SLM = (2,00,000 − 20,000) ÷ 5 = ₹36,000 a year. Books close on 31 March. Let us record everything.
- Purchase: Machinery A/c Dr. ₹1,80,000 To Bank A/c; installation: Machinery A/c Dr. ₹20,000 To Cash A/c. Installation is capitalised, i.e. added to the machine’s cost.
- 31 March 2027: Depreciation A/c Dr. To Machinery A/c ₹36,000.
- 31 March 2027: Profit and Loss A/c Dr. To Depreciation A/c ₹36,000.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 1 | Machinery A/c Dr. | 1,80,000 | ||
| To Bank A/c | 1,80,000 | |||
| (Being machine purchased by cheque) | ||||
| Apr 1 | Machinery A/c Dr. | 20,000 | ||
| To Cash A/c | 20,000 | |||
| (Being installation expenses paid) | ||||
| 2027 Mar 31 | Depreciation A/c Dr. | 36,000 | ||
| To Machinery A/c | 36,000 | |||
| (Being depreciation charged on machinery) | ||||
| Mar 31 | Profit and Loss A/c Dr. | 36,000 | ||
| To Depreciation A/c | 36,000 | |||
| (Being depreciation transferred to Profit and Loss Account) | ||||
| Total | 2,72,000 | 2,72,000 |
- Year 1: debit side has Bank 1,80,000 and Cash 20,000; credit side Depreciation 36,000 and the balance 1,64,000 carried down.
- Years 2 and 3: start with the balance brought down, credit ₹36,000 depreciation, carry down the rest: 1,28,000, then 92,000.
- The Depreciation Account is debited with ₹36,000 (from Machinery) and closed every year by transfer to Profit and Loss. It never carries a balance.
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| 2026 Apr 1 | To Bank A/c | 1,80,000 | 2027 Mar 31 | By Depreciation A/c | 36,000 | ||
| Apr 1 | To Cash A/c (installation) | 20,000 | Mar 31 | By Balance c/d | 1,64,000 | ||
| 2,00,000 | 2,00,000 | ||||||
| 2027 Apr 1 | To Balance b/d | 1,64,000 | 2028 Mar 31 | By Depreciation A/c | 36,000 | ||
| Mar 31 | By Balance c/d | 1,28,000 | |||||
| 1,64,000 | 1,64,000 | ||||||
| 2028 Apr 1 | To Balance b/d | 1,28,000 | 2029 Mar 31 | By Depreciation A/c | 36,000 | ||
| Mar 31 | By Balance c/d | 92,000 | |||||
| 1,28,000 | 1,28,000 | ||||||
| 2029 Apr 1 | To Balance b/d | 92,000 |
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| 2027 Mar 31 | To Machinery A/c | 36,000 | 2027 Mar 31 | By Profit and Loss A/c | 36,000 | ||
| 2028 Mar 31 | To Machinery A/c | 36,000 | 2028 Mar 31 | By Profit and Loss A/c | 36,000 | ||
| 2029 Mar 31 | To Machinery A/c | 36,000 | 2029 Mar 31 | By Profit and Loss A/c | 36,000 |
Sharma Traders charges depreciation of ₹4,000 on furniture directly to the asset account on 31 March 2027. Pass the first year-end entry.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2027 Mar 31 | Depreciation A/c Dr. | 4,000 | ||
| To Furniture A/c | 4,000 | |||
| (Being depreciation charged on furniture) |
2.1 The same method with WDV and a mid-year purchase
- 2026-27 (6 months): 80,000 × 10% × 6/12 = ₹4,000 → balance 76,000.
- 2027-28: 10% of 76,000 = ₹7,600 → balance 68,400.
- 2028-29: 10% of 68,400 = ₹6,840 → balance 61,560.
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| 2026 Oct 1 | To Bank A/c | 80,000 | 2027 Mar 31 | By Depreciation A/c | 4,000 | ||
| Mar 31 | By Balance c/d | 76,000 | |||||
| 80,000 | 80,000 | ||||||
| 2027 Apr 1 | To Balance b/d | 76,000 | 2028 Mar 31 | By Depreciation A/c | 7,600 | ||
| Mar 31 | By Balance c/d | 68,400 | |||||
| 76,000 | 76,000 | ||||||
| 2028 Apr 1 | To Balance b/d | 68,400 | 2029 Mar 31 | By Depreciation A/c | 6,840 | ||
| Mar 31 | By Balance c/d | 61,560 | |||||
| 68,400 | 68,400 | ||||||
| 2029 Apr 1 | To Balance b/d | 61,560 |
A machine is bought on 1 April 2026 for ₹1,50,000. Depreciation is 10% p.a. on WDV and is charged to the asset account. What will be the balance of the Machinery Account brought down on 1 April 2028 (in ₹)?
3. Method 2: Creating a Provision for Depreciation account
Here the asset account is not disturbed. It stays at original cost year after year. The depreciation of each year is collected (accumulated) in a separate account called Provision for Depreciation A/c or Accumulated Depreciation A/c. This account has a credit balance that grows every year.
(a) Depreciation A/c Dr. To Provision for Depreciation A/c
(b) Profit and Loss A/c Dr. To Depreciation A/c
Balance sheet: the asset is shown at original cost; the provision is shown as a deduction from the asset on the assets side (or, as NCERT also allows, on the liabilities side).
Ahuja Printers now keeps a Provision for Depreciation account. On 31 March 2027 it records depreciation of ₹36,000 on machinery. Pass the first year-end entry.
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2027 Mar 31 | Depreciation A/c Dr. | 36,000 | ||
| To Provision for Depreciation A/c | 36,000 | |||
| (Being depreciation provided on machinery) |
Pass the second year-end entry for the ₹36,000 depreciation of Ahuja Printers (same under both methods).
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2027 Mar 31 | Profit and Loss A/c Dr. | 36,000 | ||
| To Depreciation A/c | 36,000 | |||
| (Being depreciation transferred to Profit and Loss Account) |
- Machinery Account: debited with ₹2,00,000 on purchase; every year simply carried down at ₹2,00,000.
- Provision for Depreciation Account: credited with ₹36,000 each year; balance grows 36,000 → 72,000 → 1,08,000.
- Balance sheet on 31 March 2029: Machinery 2,00,000 less Provision 1,08,000 = 92,000. The net figure is the same ₹92,000 as under Method 1.
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| 2026 Apr 1 | To Bank A/c | 1,80,000 | 2027 Mar 31 | By Balance c/d | 2,00,000 | ||
| Apr 1 | To Cash A/c (installation) | 20,000 | |||||
| 2,00,000 | 2,00,000 | ||||||
| 2027 Apr 1 | To Balance b/d | 2,00,000 | 2028 Mar 31 | By Balance c/d | 2,00,000 | ||
| 2028 Apr 1 | To Balance b/d | 2,00,000 | 2029 Mar 31 | By Balance c/d | 2,00,000 | ||
| 2029 Apr 1 | To Balance b/d | 2,00,000 |
| Date | Particulars | J.F. | ₹ | Date | Particulars | J.F. | ₹ |
|---|---|---|---|---|---|---|---|
| 2027 Mar 31 | To Balance c/d | 36,000 | 2027 Mar 31 | By Depreciation A/c | 36,000 | ||
| 36,000 | 36,000 | ||||||
| 2028 Mar 31 | To Balance c/d | 72,000 | 2027 Apr 1 | By Balance b/d | 36,000 | ||
| 2028 Mar 31 | By Depreciation A/c | 36,000 | |||||
| 72,000 | 72,000 | ||||||
| 2029 Mar 31 | To Balance c/d | 1,08,000 | 2028 Apr 1 | By Balance b/d | 72,000 | ||
| 2029 Mar 31 | By Depreciation A/c | 36,000 | |||||
| 1,08,000 | 1,08,000 | ||||||
| 2029 Apr 1 | By Balance b/d | 1,08,000 |
| Balance Sheet (extract) as at 31 March 2029 — Assets side | ₹ | |
|---|---|---|
| Machinery (at cost) | 2,00,000 | |
| Less: Provision for Depreciation | (1,08,000) | 92,000 |
Equipment costing ₹3,00,000 is bought on 1 April 2026. Depreciation is 10% p.a. on original cost and is accumulated in a Provision for Depreciation account. What will be the balance of the provision account on 31 March 2029 (in ₹)?
If a firm uses WDV together with a provision account, the WDV for each year is found as cost − provision balance at the start of the year, and the rate is applied to that figure.
4. The two methods side by side
| Basis | Charging to asset account | Provision for depreciation account |
|---|---|---|
| Credit of depreciation entry | Asset A/c | Provision for Depreciation A/c |
| Asset account balance | Falls every year (net book value) | Stays at original cost |
| Total depreciation till date | Not visible directly | Visible in the provision account |
| Balance sheet | Asset at book value | Asset at cost, less provision |
| Effect on profit | Same: Profit and Loss A/c is debited with the year’s depreciation in both | |
Three frequent mistakes: (i) crediting Provision for Depreciation but also reducing the asset account (double counting); (ii) showing a balance in the Depreciation Account at year end (it is always closed to Profit and Loss); (iii) writing “To Balance c/d” on the credit side of the provision account. The provision has a credit balance, so its c/d goes on the debit side.
- Original cost, with the provision deducted from it
- Written down value only, with no mention of cost
- Market value
- Original cost plus provision
Ask one question: “Where does the credit go?” Asset account → Method 1. Provision account → Method 2. The debit is always Depreciation A/c, and Depreciation A/c always ends in Profit and Loss.
📌 Points to remember (Quick Revision)
- Purchase entry: Asset A/c Dr. To Bank/Cash/Supplier, at full cost including installation and freight.
- Method 1: Depreciation A/c Dr. To Asset A/c; asset shows net book value in the balance sheet.
- Method 2: Depreciation A/c Dr. To Provision for Depreciation A/c; asset stays at cost, provision (credit balance) is deducted from it.
- In both methods: Profit and Loss A/c Dr. To Depreciation A/c at year end; the Depreciation A/c never carries a balance.
- Profit is the same under both methods; only the presentation differs.
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