An accumulated depreciation journal entry is an end of the year journal entry used to add the current year depreciation expense to the existing accumulated depreciation account.
The accumulated depreciation account represents the total amount of depreciation that the company has expensed over time. Each year when the accumulated depreciation journal entry is recorded, the accumulated depreciation account is increased.
Accumulated depreciation is a contra asset account (an asset account with a credit balance) that adjusts the book value of the capital assets. So if a fixed asset that was purchased for $100,000 has $90,000 of accumulated depreciation, the book value of this asset would only be $10,000.
Each year as the accumulated depreciation increases, the book value of the fixed asset decreases until the book value is zero. In other words, the accumulated deprecation account can never be more than the asset account. In the example above, accumulated deprecation could never be more than $100,000. When the accumulated depreciation equals the asset purchase price, the book value is zero and the asset can no longer be depreciated.
The accumulated depreciation journal entry is recorded by debiting the depreciation expense account and crediting the accumulated depreciation account.
Accumulated Depreciation Journal Entry Example
Construction Bob’s, Inc. recently purchased a new car that cost $5,000 for making deliveries and picking up new supplies. This car’s useful life is 5 years and Bob expects the salvage value to be zero. The car is depreciated at a rate of $1,000 a year. At the end of this year, Bob will record this accumulated depreciation journal entry.