Recording Depreciation in the Books
Once the depreciation expense is calculated, the adjusted entry would be:
Method 1
Depreciation Account Dr.
Provision for Depreciation Account
The nominal account is closed and the balance transferred to the Profit and Loss Account by:
Profit and Loss Account Dr.
Depreciation Account
The Provision for Depreciation Account shows the accumulated depreciation on the fixed asset. Like other liability accounts, it is closed by bringing its balance down. The Fixed Assets account is always maintained at its original cost. In the Balance Sheet, the fixed asset is shown at it book value, thus is, cost minus the provision for depreciation.
Method 2
In this method, depreciation expense is directly credited into the fixed asset itself. In this case, the book value of the fixed asset is the balance in the Asset Account.
The entries are:
Depreciation account Dr.
Fixed asset Account
Depreciation account is closed and its balance is transferred to the Profit and Loss account.
Profit and Loss Account Dr.
Depreciation Account
The effect on the Profit and Loss account and the Balance Sheet remains unchanged.
When no Provision for Depreciation Account is set up to record all the accumulated depreciation, the Fixed asset is brought down to its book value at the close of each accounting period after depreciation is written off.
