How to put entries in depreciation & accumulated depreciation accounts?

Ok, so depreciation is a way of showing the cost of an asset in the P&L over its estimated useful life.

So, when you buy an asset, you put it on the balance sheet - Debit Asset and Credit bank (or creditors, or loan, depending on how you bought it). You then move some of the cost over to the profit and loss every year - via the depreciation journal.

Why do you put in on the balance sheet as opposed to recording it as an expense? Because it costs a large amount of money ('large' is relative to the size of the business) and will last more than a year. Typically fixed assets will be motor vehicles, plant and machinery, and fixtures and fittings for premises. So it's not right to put the whole cost on the P&L for one accounting period - it needs to be shown as an expense 'as it is used.' This is what depn is.

In the P&L, an expense is a debit.

So, when you post depreciation, you have to Debit the P&L. The corresponding credit therefore is to the balance sheet - and it is to an account that 'lives with' the asset cost account - the Accumulated Depreciation account.

Typically, depreciation is posted once a year and for your studies you can assume this, unless the question tells you otherwise.

You calculate the depn, and then always Debit Depreciation Expense (P&L) and Credit Accumulated Depreciation in the Balance Sheet.

Hope that helps - not sure I've explained it brilliantly!

Assuming it's an ordinary depreciation journal, it's always DR P&L (depreciation expense) and CR Balance Sheet (accumulated depn). A journal is the name for the adjustment that posts the depreciation to the ledgers.

When to do it: usually at year end, or sometimes month-end, depending on the organisation.

I'm not really sure I can add more than that. Any help?

I think the 'T' Monsoon refers to is Technician, (as in accounting technician) (I could be wrong!) xxx