Financial Accounting · Depreciation

Depreciation Journals and Ledger Accounting for ACCA FA

Updated 11 October 2026 · Fact-checked

Depreciation is recorded each year by debiting depreciation expense (income statement) and crediting accumulated depreciation (a contra account to the asset). The asset stays at cost in the ledger. In the statement of financial position, you show cost less accumulated depreciation as the carrying amount.

Understand Depreciation Journals and Ledger Accounting

Depreciation spreads the cost of a non-current asset over its useful life. It follows the accruals concept: the asset helps earn income over several years, so its cost is charged as an expense over those years. It is not a way of valuing the asset at market price.

Each year you make one journal entry. Debit depreciation expense and credit accumulated depreciation. The expense account is closed to the income statement at the year end. The accumulated depreciation account is not closed. It carries its balance forward and grows each year.

The asset cost account is left untouched. This keeps the original cost visible. Accumulated depreciation is a contra asset: it has a credit balance and reduces the asset in the statement of financial position.

In the statement of financial position, show cost, accumulated depreciation and carrying amount (cost less accumulated depreciation). In the income statement, show only the depreciation charge for the year, not the accumulated total.

Under IAS 16, depreciation is charged on each class of asset, and the charge is usually shown within expenses. Land is normally not depreciated. Cash does not move when you charge depreciation: it is a non-cash expense.

Key formulas to remember

Annual depreciation journal: Dr Depreciation expense; Cr Accumulated depreciation; Made each year for each asset class. Same entry whatever the method.
Carrying amount: Carrying amount = Cost − Accumulated depreciation; This is the figure shown in the statement of financial position.
Straight-line charge: (Cost − Residual value) ÷ Useful life; Use when the question says straight-line. Adjust for part years if told to.
Reducing balance charge: Depreciation = Rate × Opening carrying amount; Apply the rate to carrying amount, not cost.
Closing accumulated depreciation: Opening balance + Charge for the year − Depreciation on disposals; Use this to build the ledger account balance.

How to solve Depreciation Journals and Ledger Accounting questions

Use this method for any depreciation journal or ledger question.

1Identify the asset classes and their cost, and note any additions or disposals in the year.
2Find the opening accumulated depreciation for each class from the trial balance or question.
3Calculate the charge for the year using the stated method, rate and time period.
4Write the journal: debit depreciation expense, credit accumulated depreciation.
5Post to the ledger: the expense account, then the accumulated depreciation account. Balance each one off.
6Transfer the expense to the income statement. Show the asset at cost less closing accumulated depreciation in the statement of financial position.
7Check that carrying amount equals cost less accumulated depreciation and is not negative.

Quickest way: Charge, then closing balance

When to use it: Use in objective test questions asking for the charge, the closing balance or the carrying amount.

Work out the year's charge first and note it.
Closing accumulated depreciation = opening + charge (less any disposal amounts).
Carrying amount = cost − closing accumulated depreciation.
Remember the debit goes to expense and the credit to accumulated depreciation, then match the options.
Eliminate options that credit the asset cost account or debit accumulated depreciation for a normal charge.

Common mistakes in Depreciation Journals and Ledger Accounting

Crediting the asset cost account with the depreciation charge.
Students think depreciation reduces the asset directly.
Fix: Credit accumulated depreciation. Keep the cost account at original cost.
Showing accumulated depreciation in the income statement.
The two accounts have similar names.
Fix: Only the year's expense goes in the income statement. The accumulated total goes in the statement of financial position.
Applying the reducing balance rate to cost every year.
Students copy the straight-line habit.
Fix: Apply the rate to the opening carrying amount (cost less accumulated depreciation).
Treating depreciation as a cash outflow.
Students link every expense to cash.
Fix: Depreciation is non-cash. No bank entry is made.
Forgetting the opening accumulated depreciation when finding the closing balance.
Students focus only on the current year's charge.
Fix: Always add the charge to the opening balance.
Depreciating land.
Land and buildings are often given together.
Fix: Separate land from buildings. Depreciate only the buildings unless told otherwise.

Worked examples

Example 1

On 1 January a business owns equipment costing $50,000 with accumulated depreciation of $20,000. Depreciation is 20% reducing balance. Give the journal for the year and the carrying amount at 31 December.

Show the solution

Opening carrying amount = 50,000 − 20,000 = $30,000.
Charge = 20% × 30,000 = $6,000.
Journal: Dr Depreciation expense $6,000; Cr Accumulated depreciation $6,000.
Closing accumulated depreciation = 20,000 + 6,000 = $26,000.
Carrying amount = 50,000 − 26,000 = $24,000.

Answer: Dr Depreciation expense $6,000, Cr Accumulated depreciation $6,000. Carrying amount at 31 December is $24,000.

Example 2

A company buys a machine on 1 January for $48,000 with a residual value of $6,000 and a useful life of 7 years. It uses straight-line depreciation. Show the ledger accounts for the first year and the statement of financial position extract at the end of year 1.

Show the solution

Annual charge = (48,000 − 6,000) ÷ 7 = 42,000 ÷ 7 = $6,000.
Depreciation expense account: Dr $6,000 (from accumulated depreciation entry), then Cr $6,000 transferred to income statement, leaving a nil balance.
Accumulated depreciation account: Cr $6,000, balance carried down $6,000.
Machine cost account stays Dr $48,000.
Statement of financial position: cost $48,000, less accumulated depreciation $6,000, carrying amount $42,000.

Answer: Charge $6,000 to the income statement. Statement of financial position shows machine at carrying amount $42,000 (cost $48,000 less accumulated depreciation $6,000).

Exam tips

In multiple choice questions, check the debit and credit sides carefully. Wrong options often swap them.
For number entry questions, read whether the answer asks for the charge, the accumulated balance or the carrying amount.
Check whether the question gives a rate on cost or on carrying amount before calculating.
In Section B accounts preparation, take opening accumulated depreciation from the trial balance and add the new charge.
Note any part-year rule given, such as a full year in the year of purchase and none in the year of disposal.

Practice questions from Depreciation

Depreciation Journals and Ledger Accounting in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Depreciation Journals and Ledger Accounting: frequently asked questions

What is the journal entry for depreciation?

Debit depreciation expense and credit accumulated depreciation. The debit goes to the income statement. The credit builds up in the statement of financial position as a deduction from the asset.

Why do we use an accumulated depreciation account?

It keeps the asset at original cost in the ledger while showing total depreciation to date separately. This gives users both cost and carrying amount. It also helps with disposals and the non-current asset note.

Does accumulated depreciation appear in the income statement?

No. Only the current year's depreciation expense appears there. Accumulated depreciation is shown in the statement of financial position or the notes as a deduction from cost.

Is accumulated depreciation a liability?

No. It is a credit balance, but it is not a liability. It is a contra account that reduces the asset's cost to its carrying amount.