1      Depreciation Charge is recorded in Depreciation Account And Fixed Asset Account is credited with the depreciation amount.

Accounting entries as follows:

Step 1:

Debit: Depreciation Account

Credit: Fixed Asset Account

Being initial taking up the depreciation into a Depreciation account.

Step 2:

At close of accounting period,

Debit: Profit & Loss Account

Credit: Depreciation Account

Being Depreciation account being closed and transferred debit to Profit & Loss Account

Income Statement:

Depreciation Charge        $XXX

Balance Sheet:

Fixed Assets (NET figure) $YYY

Example:

A machine $10,000 was bought on 1 st January 2005. Depreciation rate is 10% per year on cost.

Following the above steps:

Debit: Depreciation Account  $1,000

Credit: Fixed Asset Account  $1,000

Debit: Profit & Loss Account  $1,000

Credit: Depreciation Account  $1,000

Income Statement for Year ended 31^st December 2005

Depreciation charged $1,000

Balance Sheet As At 31 st December 2005

Fixed Asset (net)      $9,000

(One line only to show net fixed asset)

2.    PROVISION FOR DEPRECIATION ACCOUNT is opened for each type of asset. The depreciation amount is debited to the Profit and Loss Account and CREDITED to the Provision For Depreciation Account.

       THE FIXED ASSET ACCOUNT IS ALWAYS  KEPT AT COST ( UNTOUCHED)

Accounting Entries as follows:

Debit Profit and Loss Account

Credit: Provision for Depreciation Account

Income Statement:

Depreciation Charge   $XXX

Balance Sheet:

Fixed Asset (Cost)                    $YYY

Less:

Provision for Depreciation         ($YY)

Fixed Assets at Net Book Value $YYY

Example:

A machine $10,000 was bought on 1 st January 2005. Depreciation rate is 10% per year on cost.

Following the above steps:

Debit: Depreciation -Profit & Loss a/c  $1,000

Credit: Provision For Depreciation a/c  $1,000

Income Statement for Year ended 31^st December 2005

Depreciation charged       $1,000

Balance Sheet As At 31 st December 2005

Fixed Asset                         $10,000

Less:

Provision for Depreciation     ($1,000)

Fixed Asset (Net Book Value)  $9,000