The depreciation journal entry debits Depreciation Expense and credits Accumulated Depreciation. The debit puts one period's share of the asset's cost on the income statement; the credit builds up in a contra-asset account that offsets the asset on the balance sheet. The asset account itself — Machinery, Equipment, Vehicles — never changes.
Say a company buys a packaging machine on January 1 for $91,800. It expects to use the machine for 8 years and then sell it for $6,600 (the salvage value). Under straight-line depreciation, each year carries an equal share of the cost:
($91,800 cost − $6,600 salvage) ÷ 8 years = $10,650 per year
That works out to $887.50 per month if the company closes its books monthly. Depreciation is one of the standard adjusting entries: no invoice or cash payment triggers it at period end, so the accountant has to record it deliberately before closing the books.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec 31 | Depreciation Expense | $10,650 | |
| Dec 31 | Accumulated Depreciation — Machinery | $10,650 |
A natural first instinct is to credit Machinery directly and shrink the asset. Accounting deliberately avoids that. Instead, the credit goes to Accumulated Depreciation — a contra-asset account. It lives in the asset section of the balance sheet, carries a credit balance, and is subtracted from the asset it belongs to.
Keeping the two accounts separate preserves information. A reader of the balance sheet can see both the machine's original cost ($91,800) and how much of that cost has been used up so far. If the cost were credited away directly, both facts would collapse into a single shrinking number.
The number that remains after the subtraction is the asset's book value (also called carrying value):
Book value = cost − accumulated depreciation
After year 1, the machine's book value is $91,800 − $10,650 = $81,150. After year 2, accumulated depreciation has grown to $21,300 and book value is $70,500. The cost never moves; only the offset grows.
The entry also keeps the accounting equation balanced. The debit to Depreciation Expense reduces net income, which reduces equity. The credit to the contra-asset reduces net assets by the same $10,650. Assets down $10,650, equity down $10,650 — balanced.
One more distinction worth pinning down: Depreciation Expense is a temporary account that closes to zero at each year-end, so it only ever shows one period's charge. Accumulated Depreciation is permanent — it carries forward and keeps growing every period the asset is in service.
Because Accumulated Depreciation carries forward, three identical year-end entries stack up: $10,650 × 3 = $31,950. Here is how the machine appears on the balance sheet at the end of year 3.
| Balance sheet line | Amount |
|---|---|
| Machinery, at cost | $91,800 |
| Less: Accumulated Depreciation | ($31,950) |
| Machinery, net (book value) | $59,850 |
The journal entry in year 3 is identical to the entry in year 1 — same accounts, same $10,650. What changes is the running balance in Accumulated Depreciation, not the entry itself. Exam questions often test exactly this: the entry amount stays constant under straight-line, while the contra-account balance grows by that amount each period.
If the machine is bought on April 1 instead of January 1, the first year only covers 9 months of use. Prorate the annual amount: $10,650 × 9/12 = $7,987.50 for the first calendar year. The entry is the same two accounts, just for $7,987.50. The final 3 months of the asset's life get picked up in calendar year 9 — an asset bought April 1 with an 8-year life is not fully depreciated until March 31 of year 9.
Each asset class keeps its own contra-account: Accumulated Depreciation — Machinery, Accumulated Depreciation — Vehicles, and so on. A company can record one compound entry at period end: a single debit to Depreciation Expense for the total, and one credit to each accumulated account. The rule doesn't change — total debits must still equal total credits.
After year 8, Accumulated Depreciation reaches $85,200 and book value rests at the $6,600 salvage value. Depreciation stops there: an asset is never depreciated below salvage, and no further entries are made even if the machine keeps running. Both the cost and the accumulated balance stay on the books until the asset is disposed of. At disposal, one final entry removes both sides — debit Accumulated Depreciation for $85,200, credit Machinery for $91,800, and record the cash received; any difference between cash and book value becomes a gain or loss on disposal.
Debit Depreciation Expense, credit Accumulated Depreciation — never the asset account. The asset keeps its original cost on the books, and book value at any date is that cost minus the accumulated depreciation balance.
Depreciation Expense is a debit. Like all expenses, it increases with a debit. The matching credit goes to Accumulated Depreciation, the contra-asset account.
Neither in the usual sense — it is a contra-asset. It sits in the asset section of the balance sheet with a credit balance and is subtracted from the related asset's cost. It is not a liability because the company owes nothing to anyone; it simply measures how much of the asset's cost has been expensed.
Either, depending on how often the company closes its books. A company closing monthly would record $887.50 each month for the machine above; a company closing annually records $10,650 once at year-end. Twelve monthly entries add up to the same annual total.
Cash left the company when the asset was purchased. Depreciation does not pay for anything — it allocates that original cost across the periods the asset is used. That is why depreciation is called a non-cash expense.
Remove both sides of the record: debit Cash for the proceeds, debit Accumulated Depreciation for its full balance, and credit the asset account for its original cost. If the proceeds differ from book value, the difference is recorded as a gain or loss on disposal.
No. The asset account holds original cost for the asset's entire life. All of the reduction happens in Accumulated Depreciation, which is why book value is always computed as cost minus accumulated depreciation rather than read from a single account.
By the FinanceBrain Team · Last verified July 10, 2026 · How we produce and verify articles