What is the difference between provision for depreciation and accumulated depreciation

At the end of each financial year, debit the depreciation expense account and credit the provision for depreciation on relevant fixed asset account with the amount of depreciation calculated for the year. Debit the depreciation expense account Credit the provision for depreciation on the relevant fixed asset.

The balance in depreciation expense account is transferred to the profit and loss account at the end of the year. Note that the provision on depreciation account is not a nominal account, it is a part of the asset account. Also note that it will always show a credit balance that will increase each year. At any given time, the balance on a provision for depreciation account represents the total accumulated depreciation that has been provided against a particular asset.

No entry relating to depreciation is made in a fixed asset account. This account will continue to show a debit equal to the cost of the fixed asset concerned. The only entries that will be made in the fixed asset account will be in respect of fresh purchases or sales of the asset concerned. Although one depreciation account is enough to accommodate the depreciation expense on all fixed assets for the year, a separate provision for the depreciation account must be maintained for each fixed asset account.

If a fixed asset is recorded using the revaluation approach for calculating depreciation, it is usually not necessary or beneficial to maintain a separate provision for depreciation account for it. For such assets, the treatment shown on the revaluation method is sufficient i. Required: Show the relevant ledger accounts for the years , , and Keeping a separate provision for depreciation account for each fixed asset offers the following advantages:.

Depreciation is also accounted.. Hope i cleared ur doubt.. Guest Accumulated Dep and Prov. Only the names are different. Hope i was able to clerify your doubts.

Please advise when the below entry will be passed if Accumulated Depreciation method is followed: Accumulated Depreciation Dr Fixed Assets account Leave a reply. Previous Thread. Next Thread. Related Threads. Start a New Discussion Popular Discussion. Subscribe to the latest topics : Subscribe. Search Forum: Search. Forum Home. Popular Threads. Recent Posts. Unreplied Threads. Post New Topic. Trending Tags. Member Strength 35,28, and growing..

Such methods include,. Salvage value or the residual value is the amount to which the asset can be sold at the end of the economic useful life. The economic life of the machine is 10 years.

This method charges a higher depreciation amount at the earlier years of an asset and gradually reduce the charge as the asset wears off. This method charges depreciation at a fixed rate per unit of production. Here, the purchase cost less salvage value of the asset will be divided by the estimated total units of production instead of the economic useful life.

Provision for depreciation is the portion of depreciation for the accounting period. Depreciation is charged at the end of the accounting period, and this results in lowering of the asset value.

However, this reduction is not accounted for by crediting the asset account, as the asset will be continued to show in its original value. At the time of the sale of the asset, the accumulated depreciation is debited, and the asset account is credited. Continuing with the same example,.

Dili has a professional qualification in Management and Financial Accounting.