How to Journalize Depreciation

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You can quickly determine the value of an asset by correctly journalizing depreciation. When you do, depreciated assets can be used as leverage and future business operations planning. For example, the depreciated value of a purchased equipment asset can be used as collateral to secure a loan. General journal entries enable you to put a value on an asset. You can track its value either by a previous or upcoming accounting year-end date.

Things You'll Need

  • Word processing or spreadsheet software
  • Create a four-column table with 20 rows using either word processing or spreadsheet software. Add rows as needed throughout these steps.

  • Enter four column headers: "Date," "Account Name," "Debit" and "Credit."

  • Type the accounting year-ending dates in the rows below the "Date" column. Skip three lines between each row.

  • Type the words, "Depreciation Expense" in the first row under "Account Name" column.

  • Locate the second row under the "Account Name" column and directly below the words,"Depreciation Expense." Press the space bar 10 times, and then type the words "Accumulated Depreciation." Note that "Accumulated Depreciation" should be spaced farther to the right of the words "Depreciation Expense" while remaining in the "Account Name" column.

  • Enter the depreciation expense amount for the first year the asset was placed in service in the first row under the "Debit" column. This figure represents the total depreciation expense by the end of the accounting tax year.

  • Enter the accumulated depreciation for the asset placed in service by the end of that specific accounting year in the second row under the "Credit" column.

  • Repeat these steps for subsequent years the asset is placed in service.

  • Instantly figure the book value of an asset. Locate the accounting year-end date under the "Date" column of the asset you want to determine the book value. Add up the accumulated credits in the "Credits" column up through and including that specific accounting year-end date. Subtract this figure from the original cost of the asset to get the book value.

Tips & Warnings

  • Monthly financials require 1/12 entries as well. The annual depreciation expense (debit) would be divided into 12 months and monthly entries would then be journalized.
  • Journalizing depreciation is different from IRS-regulated depreciation for tax purposes. Review current year tax publications before calculating asset depreciation for tax purposes.

References

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