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ACCA Applied Knowledge · Financial Accounting · Depreciation

Which journal correctly records the annual depreciation charge for a non-current asset?

Debit depreciation expense and credit accumulated depreciation. The expense is recognised in profit or loss, while the credit builds up the accumulated depreciation allowance that is deducted from cost to give the carrying amount. Depreciation is a non-cash allocation, so cash is not involved.

  1. ADebit depreciation expense, credit accumulated depreciationCorrect
  2. BDebit accumulated depreciation, credit depreciation expense
  3. CDebit asset cost, credit depreciation expense
  4. DDebit depreciation expense, credit cash

Explanation

Depreciation is an expense, so it is debited to the statement of profit or loss. The credit goes to the accumulated depreciation account, which reduces the carrying amount. No cash moves, so crediting cash is wrong.

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