Provision for Depreciation Account: Ledger Treatment Made Simple

Provision for Depreciation Account is one of those topics where the calculation may be correct, but the ledger treatment still feels confusing.

The reason is simple. In basic depreciation questions, you may have learnt to credit the Asset Account directly. But when Provision for Depreciation Account is maintained, the Asset Account is not credited with depreciation every year.

Instead, depreciation is collected in a separate account.

That small change affects almost everything:

• the Asset Account
• the Depreciation Account
• the Provision for Depreciation Account
• the Balance Sheet
• the entries when the asset is sold

Once you understand the purpose of the provision account, the whole topic becomes much easier.

Think of the Asset Account as the record of what the business paid for the asset. Think of Provision for Depreciation Account as the record of how much of that cost has been used up over time.

Both are needed. They just show different things.

What Provision for Depreciation Account Means

Provision for Depreciation Account is an account that records the total depreciation charged on an asset up to a particular date.

It is also commonly called Accumulated Depreciation Account.

For example, suppose a machine was purchased for Rs. 1,00,000 and depreciation of Rs. 10,000 is charged every year.

After three years:

Particular	Amount
Original cost of machine	Rs. 1,00,000
Total depreciation for three years	Rs. 30,000
Written down value	Rs. 70,000

If Provision for Depreciation Account is maintained:

• Machine Account can still show Rs. 1,00,000 as cost.
• Provision for Depreciation Account shows Rs. 30,000 as accumulated depreciation.
• The Balance Sheet shows the net value as Rs. 70,000.

So the business can see both the original cost and the reduced value.

This point is very important because students sometimes place it with liabilities. In the Balance Sheet, it is normally shown by deducting it from the asset.

Why a Separate Provision Account Is Used

A separate Provision for Depreciation Account is used because it gives better information.

If depreciation is credited directly to the Asset Account, the Asset Account gradually reduces. After a few years, it shows only the written down value.

That is not wrong, but it hides the original cost.

With a separate provision account, the business can see:

Information	Where it appears
Original cost of the asset	Asset Account
Total depreciation already charged	Provision for Depreciation Account
Current book value	Balance Sheet or working note

This is useful when there are additions, sales, exchanges, or several assets of the same type.

That one rule prevents most mistakes in this chapter.

Direct Method vs Provision Method

There are two common ways to record depreciation.

The first is the direct method. The second is the provision method.

Point	Direct Method	Provision Method
Annual depreciation is credited to	Asset Account	Provision for Depreciation Account
Asset Account shows	Written down value	Original cost, unless there is a sale or addition
Separate accumulated depreciation account	Not maintained	Maintained
Balance Sheet presentation	Asset appears at reduced value	Asset appears at cost less provision

The amount of depreciation does not change only because the method changes.

What changes is the place where depreciation is recorded.

Journal Entries When Provision for Depreciation Is Maintained

There are usually two entries at the end of the year.

Entry for Charging Depreciation

Particulars	Debit	Credit
Depreciation A/c Dr.	Amount of depreciation
To Provision for Depreciation A/c		Amount of depreciation

This entry records depreciation as an expense and increases the total accumulated depreciation.

Notice what is not credited here.

Asset Account is not credited.

Entry for Transferring Depreciation to Profit and Loss Account

Particulars	Debit	Credit
Profit and Loss A/c Dr.	Amount of depreciation
To Depreciation A/c		Amount of depreciation

Depreciation Account is a temporary expense account. It is closed at the end of the year by transferring it to Profit and Loss Account.

Provision for Depreciation Account is different. It is not closed every year. It carries forward its credit balance.

What Happens in Each Ledger Account

The easiest way to understand this topic is to separate the three accounts.

Asset Account

Under the provision method, Asset Account records:

• opening cost of the asset
• purchases or additions
• cost of assets sold or discarded
• closing cost of assets still held

It does not record normal annual depreciation.

If a machine is bought for Rs. 1,00,000, the Machine Account starts with Rs. 1,00,000 on the debit side. If no machine is sold, the balance may remain Rs. 1,00,000 even after depreciation is charged.

That does not mean the machine is still worth Rs. 1,00,000.

It only means the Machine Account is showing cost.

The depreciation is shown in a separate account.

Depreciation Account

Depreciation Account records only the depreciation expense for the year.

It is opened, charged, and closed within the same accounting year.

It does not show accumulated depreciation for many years.

The usual ledger movement is:

Depreciation Account
Debit Side	Rs.	Credit Side	Rs.
To Provision for Depreciation A/c	Annual depreciation	By Profit and Loss A/c	Annual depreciation

Students often ask why Depreciation Account is debited first but then appears as “To Provision for Depreciation A/c” in the ledger.

Remember the journal entry:

Depreciation A/c Dr.
    To Provision for Depreciation A/c

So Depreciation Account receives the debit. In ledger form, the opposite account name is written on the debit side.

Provision for Depreciation Account

Provision for Depreciation Account carries the total depreciation charged till date.

It usually has a credit balance.

Every year, new depreciation is added on the credit side. The closing balance is carried forward to the next year.

A simple Provision for Depreciation Account looks like this:

Provision for Depreciation Account
Debit Side	Rs.	Credit Side	Rs.
To Balance c/d	Closing accumulated depreciation	By Balance b/d	Opening accumulated depreciation
		By Depreciation A/c	Current year’s depreciation

In the next year, the closing balance becomes the opening balance on the credit side.

This difference is the heart of the topic.

Balance Sheet Treatment

In the Balance Sheet, the asset is shown after deducting accumulated depreciation.

The format is:

Particulars	Amount
Asset at cost	Rs. X
Less: Provision for Depreciation	Rs. Y
Written down value	Rs. Z

For example:

Particulars	Amount
Machinery	Rs. 1,00,000
Less: Provision for Depreciation	Rs. 20,000
Machinery shown in Balance Sheet	Rs. 80,000

So the Balance Sheet still shows the real carrying amount, even though the Asset Account itself may show original cost.

Solved Example: Two Years of Depreciation

Suppose a machine is purchased on 1 April 2024 for Rs. 1,00,000. Depreciation is charged at 10 percent per year on cost. Accounts are closed on 31 March every year.

Depreciation each year:

Year	Calculation	Depreciation
2024-25	10 percent of Rs. 1,00,000	Rs. 10,000
2025-26	10 percent of Rs. 1,00,000	Rs. 10,000

Journal Entries for 2024-25

Particulars	Debit	Credit
Depreciation A/c Dr.	Rs. 10,000
To Provision for Depreciation A/c		Rs. 10,000

Particulars	Debit	Credit
Profit and Loss A/c Dr.	Rs. 10,000
To Depreciation A/c		Rs. 10,000

Journal Entries for 2025-26

Particulars	Debit	Credit
Depreciation A/c Dr.	Rs. 10,000
To Provision for Depreciation A/c		Rs. 10,000

Particulars	Debit	Credit
Profit and Loss A/c Dr.	Rs. 10,000
To Depreciation A/c		Rs. 10,000

Now see how the accounts behave.

Machine Account

Machine Account
Debit Side	Rs.	Credit Side	Rs.
To Bank A/c	1,00,000	By Balance c/d	1,00,000
Total	1,00,000	Total	1,00,000

The Machine Account still shows cost.

Provision for Depreciation Account

Provision for Depreciation Account
Debit Side	Rs.	Credit Side	Rs.
To Balance c/d	20,000	By Balance b/d	10,000
		By Depreciation A/c	10,000
Total	20,000	Total	20,000

After two years, total depreciation is Rs. 20,000.

Balance Sheet on 31 March 2026

Particulars	Amount
Machinery at cost	Rs. 1,00,000
Less: Provision for Depreciation	Rs. 20,000
Written down value	Rs. 80,000

This is why the method is so useful. It keeps the cost visible and still shows the reduced value.

How Additions Are Treated

If a new asset is purchased during the year, it is debited to the Asset Account.

Depreciation is then calculated according to the information in the question.

For example, suppose machinery already exists at Rs. 1,00,000 and another machine is purchased for Rs. 40,000.

The Asset Account will show:

Machinery Account	Debit Amount
Opening machinery	Rs. 1,00,000
New machinery purchased	Rs. 40,000
Total cost	Rs. 1,40,000

Depreciation is calculated separately and credited to Provision for Depreciation Account.

The Asset Account should not be reduced for depreciation.

This order keeps the answer neat.

How Sale of an Asset Changes the Entries

Sale of an asset is where Provision for Depreciation Account becomes especially important.

When an asset is sold, the business must remove:

• the original cost of the asset sold
• the accumulated depreciation on that asset
• the sale proceeds
• the profit or loss on sale

If a separate Asset Disposal Account is prepared, the entries are usually clearer.

Transfer the Cost of the Asset Sold

Particulars	Debit	Credit
Asset Disposal A/c Dr.	Cost of asset sold
To Asset A/c		Cost of asset sold

This removes the original cost from the Asset Account.

Transfer Accumulated Depreciation on the Asset Sold

Particulars	Debit	Credit
Provision for Depreciation A/c Dr.	Depreciation on asset sold
To Asset Disposal A/c		Depreciation on asset sold

This removes the depreciation already collected for that asset.

Record Sale Proceeds

Particulars	Debit	Credit
Bank A/c Dr.	Sale value
To Asset Disposal A/c		Sale value

If the asset is sold on credit, the buyer’s account is debited instead of Bank Account.

After these entries, Asset Disposal Account is balanced. The balancing figure is profit or loss.

Solved Example: Asset Sold When Provision Account Is Maintained

Suppose a machine was bought for Rs. 80,000. Accumulated depreciation on it is Rs. 30,000. It is sold for Rs. 45,000.

First find book value:

Particular	Amount
Cost of machine	Rs. 80,000
Less: Accumulated depreciation	Rs. 30,000
Book value	Rs. 50,000

Sale value is Rs. 45,000.

So there is a loss of Rs. 5,000.

Asset Disposal Account

Asset Disposal Account
Debit Side	Rs.	Credit Side	Rs.
To Machine A/c	80,000	By Provision for Depreciation A/c	30,000
		By Bank A/c	45,000
		By Profit and Loss A/c	5,000
Total	80,000	Total	80,000

Loss appears on the credit side of Asset Disposal Account because it is transferred to Profit and Loss Account.

The journal entry for loss is:

Particulars	Debit	Credit
Profit and Loss A/c Dr.	Rs. 5,000
To Asset Disposal A/c		Rs. 5,000

Notice the role of Provision for Depreciation Account. It helps remove the depreciation already charged on the machine that has been sold.

Common Mistakes to Avoid

Crediting the Asset Account With Annual Depreciation

This is the most common mistake.

If Provision for Depreciation Account is maintained, the annual entry is:

Depreciation A/c Dr.
    To Provision for Depreciation A/c

It is not:

Depreciation A/c Dr.
    To Asset A/c

Treating Provision for Depreciation as a Liability

Provision for Depreciation is not payable to anyone.

It is deducted from the asset to show written down value.

Forgetting the Opening Balance

Provision for Depreciation Account normally has an opening balance on the credit side from the previous year.

If you forget that opening balance, your accumulated depreciation will be wrong.

Closing the Provision Account Every Year

Depreciation Account is closed every year.

Provision for Depreciation Account is carried forward.

These two accounts have different jobs.

Using Total Depreciation Instead of Depreciation on the Asset Sold

When one asset is sold, transfer only the depreciation related to that asset.

Do not transfer the provision balance of all assets unless the question says all assets are sold.

This prevents mixing the sold asset with the assets still in use.

Quick Revision Table

Question	Answer
Which account is credited for annual depreciation?	Provision for Depreciation Account
Does Asset Account reduce every year?	No, not under the provision method
Where is annual depreciation transferred?	Profit and Loss Account
What balance does Provision for Depreciation Account have?	Credit balance
Where is provision shown in the Balance Sheet?	Deducted from the related asset
What does the Asset Account usually show?	Original cost, plus additions, minus cost of assets sold
What does the provision account show?	Accumulated depreciation

If you can remember this table, most ledger questions become manageable.

Frequently Asked Questions

Is Provision for Depreciation Account the same as accumulated depreciation?

Yes. In school-level accounting, Provision for Depreciation Account is commonly used to show accumulated depreciation on an asset. It collects depreciation charged over the years.

Is Provision for Depreciation a liability?

No. It is not an amount payable to an outside party. It is deducted from the related asset to show the asset’s written down value.

Why is Asset Account not credited with depreciation?

Because the business wants to keep the Asset Account at original cost. Depreciation is credited to Provision for Depreciation Account instead.

What is the difference between Depreciation Account and Provision for Depreciation Account?

Depreciation Account records the depreciation expense of one year and is closed by transfer to Profit and Loss Account. Provision for Depreciation Account records total depreciation accumulated over the years and carries its balance forward.

What is the normal balance of Provision for Depreciation Account?

It normally has a credit balance because it is credited every year with depreciation.

How is Provision for Depreciation shown in the Balance Sheet?

It is deducted from the cost of the related asset. The remaining amount is the written down value of the asset.

What happens to Provision for Depreciation when an asset is sold?

The depreciation already charged on the sold asset is removed from Provision for Depreciation Account. If an Asset Disposal Account is prepared, Provision for Depreciation Account is debited and Asset Disposal Account is credited.

Does using Provision for Depreciation change the amount of depreciation?

No. The depreciation amount depends on the method, rate, cost, useful life, and date of purchase or sale. Provision for Depreciation changes the way depreciation is recorded in the books.