Book Keeping for Depreciation

sscors

Hey

am in a bit of a quandry regarding book keeping entries for depreciation no matter how much I am reading this osborne book I still ain't getting it argghhh!!!!!!!

If anyone else understands please help

I get the double entry for the asset account ie credit bank and debit asset

What I am puzzling about is double entries with deprec charge account and accum deprec acct

Why is the deprec amount
> credited to deprec charge acct and debited to income statement
>debited to depreciation charge acct and credited toaccum deprec acct

Thank you

MarkT

Hi sscors,

The reason for the the debit and credit to be split is given away in the wording of the two accounts

The depreciation charge account is a debit in the income statement as it is an expense for the year and therefore affects the profit for the year.

The accumulated depreciation charge account is carried over (treat this as a savings account if you like - after all, you'd not want to pay £1000 in savings to just disappear at the end of the year) this is then saved as when you eventually dispose of the asset.

eg. You may have purchased a car with total value of £12000 at cost, you want to keep it for 4 years and depreciate it over 4 years but think that you will get £2000 for it when you sell it on. Fast forward 4 years, you would then have say, sold it at auction for the £2000 you wanted.

If you had no accumulated depreciation charge, you would have effectively just lost £10000 as you would not have been able to get the purchase value back - you then have whatever you depreciated against the car (for example, you depreciated £2500 per year for 4 years (£10000) therefore - you have made neither a loss or gain on disposal. This is why the credit is kept on the statement of financial position - hope this helps

burg

The idea of depreciation is to reduce the value of an asset over its useful life. The posting of the depreciation is the amount it is reducing in the current period/year. The debit to the P&L (Income statement) is the amount that is reducing the profit of the company in the preiod. The credit in the balance sheet is the amount that is reducing the value of the asset.

clegganator

Accumulated is all the disposal the asset has gathered over the whole period of ownership.
The charge for year account is... For that year!

Clear the 'charge for year' account by charging it to the P&L as you want to get that expense recorded in that year.

sscors

Wow thanks so much for the great explanations I totally understand it now. Hurray!!!!!!!