Depreciation Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
What you need
- the nominal ledger
- scrap paper for your calculations
- the journal.
Step by step
- 1.Decide what kind of asset is concerned, what pattern of erosion applies to it and so which method of depreciation is best.
- 2.Calculate the annual depreciation figure for the asset.
- 3.In the next available space in the journal, write the date in the date column, and ‘profit and loss’ in the ‘particulars’ column. Remember, never post directly to the ledger—only via a book of prime entry (in this case the journal, a useful book for miscellaneous recordings like depreciation).
- 4.Enter the amount of depreciation in the debit cash column.
- 5.Underneath the last entry in the ‘particulars’ column, indenting slightly, write: ‘provision for depreciation on [name of asset]’.
- 6.Enter the same value in the credit cash column.
- 7.Repeat for any other assets you need to depreciate in the accounts.
- 8.Open a ‘provision for depreciation’ account for each asset concerned. Record the page numbers in the index.
- 9.Make postings to each of these ledger accounts, following the instructions you have just written in the journal.
A Statement of Standard Accounting Practice (SSAP) was issued in December 1977 and revised in 1981 for the treatment of depreciation in accounts (SSAP 12). The student can refer to this for further information if desired.