Basically there are two bookkeeping rules or principles of charging depreciation into the books of the accounts:
BOOKKEEPING DOUBLE ENTRY RULES/PRINCIPLES OF CHARGING DEPRECIATION:
YEARLY method:-
- Full year depreciation should be charged in the year of purchase and NO depreciation should be charged in the year of sale, irrespective whether the asset was used for 2 or more in the year of sale and purchase
MONTHLY method:-
- Depreciation is charged for the NUMBER OF MONTHS asset is used in the year of purchase and for the number of month asset is used in the year of sale
Next the following deals with how to record provision for depreciation in our books of accounts:
RECORDING OF PROVISION FOR DEPRECIATION:
(a) Double entry bookkeeping principle or system:-
Debit: Profit & Loss account
Credit: Provision for Depreciation
Note that the CURRENT year’s depreciation is transferred to the Profit and Loss Account Previous and current year is deducted from asset balance in the Balance Sheet
Lastly lets look at the bookkeeping double entry for DISPOSAL OF FIXED ASSETS:-
Journal double entries as follows:
(a) Debit: Asset Disposal Account
Credit: Fixed Asset Account
[ to transfer all the cost of the assets to an Asset Disposal Account so as to determine whether there is any gain or loss from disposing these fixed assets]
(b) Debit: Provision for Depreciation
Credit: Asset Disposal Account
[ to transfer the total depreciation charged on the asset to the Asset Disposal Account]
© Debit: Cash or Bank
Credit Asset Disposal Account
[ to post cash received from sale of asset to Asset Disposal Account]
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