What is the Adjusting Journal Entry for Depreciation and Accumulated Depreciation?


Whether a company records its depreciation monthly or yearly, an adjusting journal entry is made to adjust the balance of depreciation expense and to record the the loss of value of the asset in the accumulated depreciation account. The journal entry is a debit to Depreciation Expense and a credit to the contra asset Accumulated Depreciation.

Depreciation Expense2,000
Accumulated Depreciation2,000
Journal Entry to record Depreciation Expense

When the entry is posted to the accounts, Depreciation Expense has increased and Accumulated Depreciation has increased. The new Accumulated Depreciation total then moves to the Balance Sheet where it shows the total reduction in the assets value from the time the asset was purchase. The Depreciation Expense is accumulating, adding up over time.

Vehicles$10,000
Less Accumulated Depreciation (2.000)
Net Book Value$ 8,000
Table showing Fixed Asset portion of a Balance Sheet

Assuming that the asset in question has a 5 year useful life and the company uses Straight Line Depreciation, the next year’s entry will be:

Depreciation Expense2,000
Accumulated Depreciation2,000
Journal Entry to record Depreciation Expense

The new Accumulated Depreciation amount will be $2,000 + $2,000 = $4,000. The Balance Sheet will now show this:

Vehicles$10,000
Less Accumulated Depreciation (4.000)
Net Book Value$ 6,000
Table showing Fixed Asset portion of a Balance Sheet

The Depreciation has Accumulated to $4,000. The Net Book Value of the asset is now $6,000. Notice we haven’t touched the original (historic) cost of the asset. We are tracking the loss in value using the Accumulated Depreciation contra asset account.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 11 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/

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