You are on page 1of 7

Following are the journal entries of transactions and financial events relating to depreciation.

All these journal entries have been passed on the basis of double entry system. 1. A company bought machinery for Rs. 10000 and depreciation rate is 10%.
a) Depreciation on fixed assets is the loss of business, and every loss will be debited. b) There is a decrease in asset and we will apply what goes from business on it. So, Machinery (Fixed asset) account will be credited. Depreciation Account Debit 1000 Machinery Account Credit 1000

2. Financial year is 1st Jan. to 31st Dec. Above same machinery has been sold at Rs. 5000 on 31st march 2011. This machinery was purchased on 1 Jan. 2010. Depreciation rate is 10% and it is charged with diminishing balance method.

Above entry will be same in this case from 1 Jan. 2010 to 31st DEC. 2010. After this, we are telling you the procedure.

a) Depreciation is loss and with this up to sale date. It will be debit

b) Value of machinery will decrease, it will be credit.

Depreciation Account Debit 225 Machinery Account Credit 225

3. Rs. 10000 depreciation transfer to Profit and Loss account.

a) Profit and loss account complete the double entry record. All expenses and loss will be debit in its account. With this, all expenses and losses account will be closed. So, profit and loss account will be debit in this journal entry.

b) Depreciation account will be credit because with this depreciation account will be closed. Please do not create doubt about showing depreciation loss in credit side. This entry is the part of closing of accounts at the end of year.

Profit and Loss Account Debit 10000 Depreciation Account Credit 10000

4.

A company bought machinery for Rs. 10000 and depreciation rate is 10%. Provision for depreciation account is maintained.

a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Provision for depreciation account will be credit because we are maintaining it. It means, we will not decrease the original cost of machinery at any time except time of sale. So, provision for depreciation will be just like liability of business. Like other liabilities, this liability account will also credit.

Depreciation Account Debit 1000 Provision for Depreciation Account Credit 1000

5.

A company bought machinery for Rs. 10000 and depreciation rate is 10%. All depreciation will be transferred to accumulated depreciation account.

a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Accumulated depreciation account is just like provision for depreciation account and it will be credit because we are collected all depreciation in the form of accumulated depreciation. It means, we want to maintain our historical cost of machinery at any time except time of sale. So, accumulated depreciation will be contra account. So, it will be credited.

Depreciation Account Debit 1000 Accumulated Depreciation Account Credit 1000

6. You sell the Car at Rs. 5,00,000. Its accumulated depreciation is Rs. 50,000. Its original cost is Rs. 600000.

a) cash account will be debited because cash comes in the business. Everything which comes in the business will be debit under second rule of double entry system.

b) Accumulated depreciation account will be debit because with this, liability will decrease. Accumulated depreciation was our liability.

c) Profit and loss account will be debit because this is the loss on sale car.

d) Original Cost of car will be credit because car goes from business.

Cash Account Debit 500000 Accumulated Depreciation Account Debit 50000 Profit and Loss Account Debit 500000 Car Account Credit 600000

7. 1st April 1997, Vishal acquires a 5 year's lease for Rs. 40000. It is decided for renewal of lease immediately after 5 years by setting up a depreciation fund. It is expected that investment will fetch interest at 5% p.a. sinking fund table shows that RS. 0.180975 invested each year will produce Rs. 1 at end of 5 years at 5% p.a.

Annual depreciation = 40000 X 0.180975 = Rs. 7239

a) Depreciation on lease is the loss of business, and every loss will be debited.
b) All depreciation will transfer to depreciation fund account. You know that depreciation cuts from profit. It decrease the profit but there is no outflow. Same amount, we will transfer in depreciation fund.

Depreciation Account Debit 7239 Depreciation Fund Account Credit 7239

(this entry will be passed five years)

When We also invest same depreciation fund money in depreciation fund investment.

a) We got investment, so depreciation fund investment account will be debit

b) Money goes from business. It means we will credit to cash account

Depreciation Fund Investment Account Debit 7239 Cash Account Credit 7239

(this entry will be passed five years)

When we receive interest on depreciation fund investment

a) We receive money of interest. So, bank or cash account will be debit.

b) Interest on depreciation fund investment account is our income. So, it will be credit

Bank Account Debit 7239 X 5% = 362 Interest on Depreciation Fund Investment Account Credit 362

(this entry will be passed five years)

8. At the expiry of the lease i.e. on 31st march, 2002, the depreciation fund investment are sold Rs. 31205 and immediately renewed for a further period of 5 years by a payment of Rs. 44000. Pass journal entries.

When we get cash on sale of depreciation fund investment

a) Cash will come on the sale, so cash account will be debit

b) Depreciation fund investment will go from our business, so depreciation fund investment account will credit

Cash Account Debit 31205 Depreciation Fund Investment Credit 31205

When Profit on sale of investment will be transfer to depreciation fund account

Depreciation Fund Investment Account Debit 4 Depreciation Fund Account Credit or Profit and loss Account 4

( Entry just on the basis of balance adjustment)

9. You have one piece of property for which you originally paid Rs. 10,000. Let's also assume after six years the property is fully depreciated and you sell it for Rs. 1,000.

We will not pass the depreciation entry because this property is fully depreciated. It means total depreciation of its working life has been transferred to profit and loss accounts. We just show as profit because total cost will already become nil.

Cash Account Debit Rs. 1000 Profit and Loss Account Rs. 1000

10. Provide depreciation of Rs. 20000 on Factory Machine. Pass the adjusting entry in final accounts

a) Manufacturing account will be debit because all the expenses relating to production will be debit in this account.

b) Depreciation account is already debited in day book. Now, this account is closed by transferring to the debit side of manufacturing account because this is the part of production expenses.

Manufacturing Account Debit 20000 Depreciation on Factory Machine 20000

1. Journal Entry for Bad Debts Loss


For showing this journal entry, it is very necessary that a debt must be uncollectible. We have done all the efforts but we did not collect the debt. After failure of final notice to the debtor, we will convert our debt in bad debt.

Bad Debt Account Debit Particular Debtor Account Credit

Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year. This receivable amount has converted in to bad debt loss by following entry. Bad Debts Account Debit 15000 Sham Account Credit 5000 Ram Account Credit 10000 2. Journal Entry for Bad Debts Written Off Written off means, we are closing bad debt account by transferring bad debt amount to the debit side of our profit and loss account . When we will show bad debts in the debit side of profit and loss account, bad debts account will show same amount in its credit side. So, both side of bad debt account will be equal. No balance will carry forward.

Profit and Loss Account Debit Bad Debts Account Credit

Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year. This receivable amount has converted in to bad debt loss and then

written off by transferring it in profit and loss account Profit and Loss Account Debit 15000 Bad Debts Account Credit 15000 3. Journal Entry for Bad Debts Recovered When bad debts are recovered from debtor after the closing of our financial year. We will show it as our income. Like other incomes, bad debts recovered will also be our income. So, this account will be credited. We will debit that asset account which will increase. By earning this income, our bank account will increase because we received same money from our debtor. At that time, following entry will be passed.

Bank Account Debit Bad Debts Recovered Account Credit

Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year 2011. In the financial year 2012, we received Rs. 6000 from Ram and 2000 from Sham on 7th June 2012 7 June 2012 Bank Account Debit 8000 Bad Debt Recovered Account Credit 8000

4. Journal Entry for Bad Debts Recovered which has been transferred to profit and loss account

Bad Debts Recovered Debit Profit and Loss Account Credit

Example : Sham did not pay us our Rs. 5000 debt and Ram did not pay us our Rs. 10000 debt up to end of the financial year 2011. In the financial year 2012, we received Rs. 6000 from Ram and 2000 from Sham on 7th June 2012. At the end of 2012, we transferred it to profit and loss account.