How to record Depreciation in T accounts?
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HOW TO RECORD DEPRECIATION IN T ACCOUNTS?
When an asset is depreciated it must be credited on the T account for the provision of depreciation and the profit and loss account must be debited. Today's video is going to show you how to do this. If you do not know what depreciation is or what the methods are you can look at our previous videos which will give you a more in depth description on these topics. Lets have a look at an example. Sandra has bought a building for £100,000 and its depreciation rate is 20% per year. The asset will depreciate by £20,000 each year. The T accounts are required for the next two years. The building was bought for £100,000 on the 1st January 2015 paid by with cash. The asset must be debited by £100,000 it would also be credited to the cash account but for the purpose of this video we are only going to focus on the depreciation accounts. These are the provision for depreciation and profit and loss account. To show the first years depreciation we must credit the provision for depreciation by £20,000 and at the end of the year we then debit the profit and loss by £20,000. If we go back to the provision for depreciation we need to balance the account we use the balance carried forward and we debit the provision for depreciation by £20,000 to make the account balance both sides. The balance carried forward then becomes the balance brought down which is the opening figure for our second year, so we credit this to the provision for depreciation. We then move on to our second year of depreciation, we credit the provision for depreciation by £20,000, we then debit the amount in the profit and loss by £20,000. Finally we have to balance the provision for depreciation account, our balance carried forward will be debited by £40,000 to allow the account to balance. This £40,000 will also appear on the credit side of the account as the balance brought down for the third year.
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