This document discusses depreciation accounting and two methods for recording depreciation - charging depreciation to the asset account or maintaining a provision for depreciation account. Under the first method, depreciation reduces the asset value each year. Under the second method, depreciation is credited to the provision for depreciation account each year so the asset remains at original cost, with depreciation accumulated in the provision account. Journal entries and an example asset account are provided to illustrate the two methods.

1. By :-Rahul Sharma
BCA III(E)

2. Depreciation
Depreciation means a fall in the value of
an asset because of usage or with efflux of
time or due to accident.

3. • In the books of accounts, Depreciation can be
charged by any two methods :-
1. When Depreciation is charged or credited to
the Assets account.
2. When Depreciation is credited to Provision
for Depreciation Account.

4. When Depreciation charged to
Assets Account
Under this method, Depreciation is directly
charged to the Assets Account, i.e., asset value is
reduced by the amount of depreciation.
Depreciation Account is closed by transferring it
to Profit And Loss Account.

5. The Journal entries for Depreciation are:-
1. Depreciation A/c …Dr.
To Asset A/c
(Being the Depreciation on asset charged)
2. Profit and Loss A/c ….Dr.
To Depreciation A/c
(Being the Depreciation transferred to Profit and Loss
A/c)

6. When Provision for Depreciation
Account is Maintained
Every year, Depreciation charged is credited to
the Provision for Depreciation Account.
At the year-end, in the Balance Sheet, the asset
will continue to appear at the original cost and
the total amount of depreciation provided will
be shown in the Provision for Depreciation
Account.

7. The Journal entries for Depreciation are:-
1. Depreciation A/c …Dr.
To Provision for Depreciation A/c
(Being the Depreciation on asset charged)
2. Profit and Loss A/c ….Dr.
To Depreciation A/c
(Being the Depreciation transferred to Profit and Loss
A/c)

8. Example
The cost of an asset is Rs. 1,20,000. Charge
the depreciation on it of Rs. 10,000 every
year. The asset was purchased on 1st April
2009. The firm close it’s accounts on 31st
March every year. Prepare the asset account
for the 2 years.

9. Dr. Asset Account Cr.
Date Particulars Rs. Date Particulars Rs.
2009
April 1
2010
April 1
To Bank A/c
To Balance b/d
1,20,000
1,20,000
1,10,000
1,10,000
2010
March 31
March 31
2011
March 31
March 31
By Depreciation A/c
By Balance c/d
By Depreciation A/c
By Balance c/d
10,000
1,10,000
1,20,000
10,000
1,00,000
1,10,000

10. Solution ( II )
Dr. Asset Account Cr.
Date Particulars Rs. Date Particulars Rs.
2009
April 1
2010
April 1
To Bank A/c
To Balance b/d
1,20,000
1,20,000
2010
March 31
2011
March 31
By Balance c/d
By Balance c/d
1,20,000
1,20,000

11. Dr. Provision For Depreciation Account Cr.
Date Particulars Rs. Date Particulars Rs.
2010
March 31
2011
March 31
To Balance c/d
To Balance c/d
10,000
20,000
20,000
2010
March 31
2010
April 1
2011
March 31
By Depreciation A/c
By Balance b/d
By Depreciation A/c
10,000
10,000
10,000
20,000

12. Difference
Depreciation Account Provision For Depreciation
Account
It is a nominal account. It is a valuation account.
It always has a debit balance. It always has a credit balance.
It is a temporary account. It is a permanent account.
This account is opened when an asset
is shown at it’s written-down value.
This account is opened when an asset
is shown at it’s original cost.
This account is charged against the
assets.
This account is not charged against
the asset account.