Bookkeeping · Guide
Depreciation journal entries: purchase, depreciation and sale
Key takeaways
- Record a long-term asset at cost (debit the asset, credit cash or a liability).
- Each period: debit Depreciation Expense, credit Accumulated Depreciation. The asset account stays at historical cost.
- Book value is cost minus accumulated depreciation.
- On disposal, bring depreciation up to date, remove both the asset and its accumulated depreciation, and book the difference between proceeds and book value as a gain or loss.
- Your books and your tax return can use different depreciation; the difference is temporary and reverses.
When a business buys a long-term asset it uses in operations, the cost is normally capitalized: recorded on the balance sheet, then expensed over the asset’s useful life through depreciation [OpenStax 11.2]. The entries below follow that pattern with straight-line book depreciation. Amounts are a worked example, not a template for your chart of accounts.
1. Record the purchase
Equipment costing $12,000, paid in cash on July 1, 2025:
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jul 1, 2025 | Equipment | 12,000.00 | |
| Cash | 12,000.00 |
If you financed it, credit Notes Payable instead of (or as well as) Cash. For a building, debit Land and Buildings separately, because land is not depreciated [Pub 946, ch. 1].
2. Record depreciation each period
Straight line spreads cost minus Salvage value. An estimate of what an asset will be worth at the end of its useful life. Used in book depreciation; not used under MACRS. Glossary evenly over the useful life. With a 5-year life and no salvage value, that is $2,400 a year. For the first, partial year, a common method is to count the months owned [OpenStax 11.3]: July to December is 6 months, so $1,200 for 2025.
| Date | Account | Debit | Credit |
|---|---|---|---|
| Dec 31, 2025 | Depreciation Expense | 1,200.00 | |
| Accumulated Depreciation, Equipment | 1,200.00 | ||
| Dec 31, 2026 | Depreciation Expense | 2,400.00 | |
| Accumulated Depreciation, Equipment | 2,400.00 |
Accumulated depreciation. A contra-asset account holding all depreciation recorded on an asset so far. Cost minus accumulated depreciation is the asset's book (carrying) value. Glossary is a contra account: it offsets the asset account, which stays at historical cost. Book value is cost minus accumulated depreciation [OpenStax 11.3]. After 2026 the equipment’s book value is $12,000 − $3,600 = $8,400.
Monthly closes use the same entry with one twelfth of the annual amount ($200 here).
3. Record a sale
Suppose you sell the equipment on June 30, 2027 for $6,500. First bring depreciation up to the sale date (6 months, $1,200), then remove the asset:
| Accumulated depreciation at sale | $1,200 + $2,400 + $1,200 = $4,800 |
| Book value | $12,000 − $4,800 = $7,200 |
| Proceeds − book value | $6,500 − $7,200 = −$700 (loss) |
| Date | Account | Debit | Credit |
|---|---|---|---|
| Jun 30, 2027 | Depreciation Expense | 1,200.00 | |
| Accumulated Depreciation, Equipment | 1,200.00 | ||
| Jun 30, 2027 | Cash | 6,500.00 | |
| Accumulated Depreciation, Equipment | 4,800.00 | ||
| Loss on Sale of Equipment | 700.00 | ||
| Equipment | 12,000.00 |
Debits ($12,000) equal credits ($12,000). Had you sold for more than $7,200, you would credit Gain on Sale of Equipment instead.
Book depreciation is not tax depreciation
Your books might use straight line over five years while your tax return takes 100% bonus depreciation in 2025. Both recover the same cost; only the timing differs. For the $12,000 machine:
| Year | Tax deduction (100% bonus) | Book expense | Difference |
|---|---|---|---|
| 2025 | 12,000.00 | 1,200.00 | 10,800.00 |
| 2026 | 0.00 | 2,400.00 | −2,400.00 |
| 2027 (to sale) | 0.00 | 1,200.00 | −1,200.00 |
The tax gain or loss on sale uses the tax basis (here $0, so a $6,500 gain recaptured as ordinary income; see depreciation recapture), while the books show a $700 loss. Track both. The calculator prints the tax schedule, the book schedule and the first journal entries side by side.
Sources
- Principles of Accounting, Volume 1: 11.2 Analyze and Classify Capitalized Costs versus Expenses, OpenStax, Rice University. Textbook (CC BY-NC-SA 4.0) · full text · checked Oct 24, 2026
- Principles of Accounting, Volume 1: 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs, OpenStax, Rice University. Textbook (CC BY-NC-SA 4.0) · full text · checked Oct 24, 2026
- Publication 946 (2025), How To Depreciate Property, Internal Revenue Service. Official guidance · full text · checked Oct 24, 2026
Update history
- : Published.
Spotted an error? Email info@smartaccounting.xyz. See the editorial policy.
Related
- Tax depreciation
Form 4562: who files it and which line each number goes on
When you need Form 4562, what each part is for, and where Section 179, bonus depreciation, MACRS and vehicle depreciation go, with two filled-in examples.
- Tax depreciation
Section 179 deduction: limits for 2025 and 2026, and when to use it
The Section 179 limit is $2,500,000 for 2025 and $2,560,000 for 2026. What qualifies, the business-income limit, the SUV cap, and how it compares with bonus depreciation.
- Tax depreciation
Depreciation recapture: what happens to depreciation when you sell
How depreciation comes back when you sell: section 1245 recapture on equipment and vehicles, unrecaptured section 1250 gain on rental buildings, with examples.