Accounting
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Fixed Asset Management
Depreciation Journal Entry: Monthly Entries, Examples and Book vs Tax Books
Last updated: October 11, 2026 · Independent guide · We do not sell rankings or coverage.
A depreciation journal entry debits depreciation expense and credits accumulated depreciation, a contra-asset account that reduces the asset’s carrying amount on the balance sheet. You post it every month from the fixed asset register, using the method, useful life and convention set in your capitalization policy. Tax depreciation (MACRS, Section 179 and bonus) is calculated in a separate book and does not post to the general ledger.
The rule and the standard entries
Straight-line depreciation for a month is (cost minus salvage value) divided by useful life in months. Declining-balance depreciation is net book value at the start of the year multiplied by a fixed rate, such as 2 divided by the useful life in years for double-declining balance.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Monthly depreciation: Depreciation expense | X | Coded to the using department | |
| Accumulated depreciation | X | Contra-asset, by asset class | |
| Disposal: Cash or receivable | Proceeds | Catch up depreciation first | |
| Accumulated depreciation | Balance to date | Clears the contra balance | |
| Loss on disposal (or Gain, as a credit) | Plug | Plug | Proceeds minus net book value |
| Fixed asset at cost | Original cost | Retires the asset | |
| Impairment: Impairment loss | Carrying amount minus fair value | After recoverability test fails | |
| Accumulated depreciation (or the asset account) | Same amount | Per your presentation policy |
Worked examples
All figures in this section are an illustration and assume a calendar fiscal year.
Example 1: straight-line with a mid-month convention
You place a $120,000 production machine in service on March 14, 2026, with a 10-year useful life and a $12,000 salvage value.
- Depreciable base: $120,000 minus $12,000 equals $108,000.
- Monthly depreciation: $108,000 divided by 120 months equals $900.
- First month: under a mid-month convention, an asset placed in service at any point in March earns half a month, so March 2026 depreciation is $450.
- April through December: 9 months at $900 equals $8,100.
- Total 2026 book depreciation: $8,550. A full-month convention (full month if in service by the 15th) would give $9,000, and a half-year convention would give $5,400.
The March 31, 2026 entry is a $450 debit to depreciation expense and a $450 credit to accumulated depreciation, machinery. For GAAP the convention is a policy choice; for tax, the IRS mid-month convention applies only to real property and railroad gradings and tunnel bores (Form 4562 Instructions, 2025).
Example 2: double-declining balance with a partial first year
You place a $30,000 server cluster in service on July 1, 2026, with a 5-year life and no salvage value. The double-declining rate is 2 divided by 5, or 40%.
- 2026: $30,000 times 40% times 6/12 equals $6,000, posted as $1,000 a month from July to December.
- 2027: net book value is $24,000. $24,000 times 40% equals $9,600, posted as $800 a month.
- 2028: net book value is $14,400. $14,400 times 40% equals $5,760, or $480 a month.
In a later year, switch to straight-line once it gives the higher charge, so the asset reaches salvage value at the end of its life.
Example 3: disposal
You sell the server cluster on March 31, 2028 for $11,000. First post January to March 2028 depreciation of $1,440 (3 months at $480). Accumulated depreciation is now $17,040 ($6,000 plus $9,600 plus $1,440) and net book value is $12,960.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Cash | $11,000 | Sale proceeds | |
| Accumulated depreciation, computer equipment | $17,040 | Balance through March 31, 2028 | |
| Loss on disposal of assets | $1,960 | $11,000 minus $12,960 | |
| Computer equipment at cost | $30,000 | Retire the asset in the register |
Example 4: impairment
At December 31, 2027 the machine from Example 1 has accumulated depreciation of $19,350 ($8,550 plus $10,800) and a carrying amount of $100,650. Undiscounted future cash flows of $90,000 fall below that, so the asset fails the recoverability test. Fair value is $70,000, so you debit impairment loss and credit accumulated depreciation (or the asset account, per your policy) for $30,650. With a reassessed $10,000 salvage value and 8 years remaining, depreciation from January 2028 is $625 a month.
Example 5: departmental allocation
The Example 2 server cluster serves three departments, and you allocate its $1,000 monthly 2026 depreciation by headcount: Sales 40%, Operations 35%, Finance 25%. The journal entry has three debit lines to depreciation expense ($400 to the Sales department, $350 to Operations, $250 to Finance) and one $1,000 credit to accumulated depreciation, computer equipment. Depreciation on manufacturing equipment is often routed to production overhead instead, so it is absorbed into inventory cost.
The standards behind the entry
Depreciation and impairment of property, plant and equipment under US GAAP sit in ASC 360. Impairment follows a two-step model: under ASC 360-10-35-17, you recognize a loss only if the carrying amount is not recoverable, meaning it exceeds the sum of undiscounted cash flows expected from use and eventual disposition, and the loss is measured as the excess of carrying amount over fair value (Deloitte DART, no date shown; Deloitte sells audit and advisory services).
Why book and tax need separate books
Tax depreciation follows the Internal Revenue Code, not your useful-life estimates. Most equipment uses MACRS recovery periods by property class (for example, 5 years for computers and office machinery, 7 years for office furniture) and IRS percentage tables. Under the half-year convention, 5-year property takes 20% of its basis in year 1 and 32% in year 2, according to IRS Publication 527 (2025 edition, dated January 8, 2026), which also lists the recovery periods above. MACRS also uses a mid-quarter convention instead of half-year when more than 40% of the year’s depreciable basis is placed in service in the last 3 months of the tax year (Form 4562 Instructions, 2025).
The bigger differences come from first-year expensing, which changed in 2025:
- Bonus depreciation: the One Big Beautiful Bill Act replaced the phase-down with a permanent 100% additional first-year deduction for qualified property acquired after January 19, 2025. You can elect a lower 40% rate (60% for certain long-production-period property and aircraft) for property placed in service in the first tax year ending after January 19, 2025 (IRS Notice 2026-11, released January 14, 2026 per KPMG, January 14, 2026, a tax advisory firm).
- Section 179 for 2026: for tax years beginning in 2026, the expensing limit is $2,560,000, reduced dollar for dollar once Section 179 property placed in service during the year exceeds $4,090,000 (Rev. Proc. 2025-32, section 4.24, released with IR-2025-103, October 9, 2025). For 2025 the figures were $2,500,000 and $4,000,000 (Publication 946, 2025).
Take the $120,000 machine from Example 1 as an illustration. If it qualifies for 100% bonus, 2026 tax depreciation is $120,000 while book depreciation is $8,550. That $111,450 gap is a taxable temporary difference under ASC 740-10-25-20, which lists faster tax deduction of depreciable property as an example (Deloitte DART, no date shown). Only the book schedule drives the monthly GL entry; the tax book feeds Form 4562 and the deferred tax liability, so it needs its own lives, methods and elections for every asset.
Common mistakes
- Crediting the asset account each month. This hides original cost and complicates disposals and audits.
- Disposing without catching up depreciation. Skipping the final months misstates the gain or loss.
- Using tax lives on the books. MACRS or 100% bonus on the GAAP books overstates expense and understates assets.
- Starting depreciation at invoice date. Depreciation begins when the asset is ready for its intended use. Assets still being installed stay in construction in progress.
- No register-to-GL reconciliation. Reconcile cost and accumulated depreciation by class every month.
How to report depreciation
Depreciation appears on the income statement as its own line or within cost of goods sold and operating expenses. The balance sheet shows property, plant and equipment at cost less accumulated depreciation, on the face or in a note by major class. In an indirect-method cash flow statement, depreciation and impairment are added back to net income, and disposal proceeds go in investing activities. For tax, depreciation and Section 179 elections go on Form 4562.
How ERP and accounting systems automate it
A fixed asset module calculates the schedule per asset and posts the monthly entry for you, which is a common first step in accounting close automation.
Sage Intacct Fixed Assets Management. Each posted entry debits depreciation expense, credits accumulated depreciation and copies the asset’s dimensions, such as department. Optional automatic posting runs on the last day of each month for all unposted entries dated on or before that day (Sage Intacct, last modified October 8, 2026). Summarization combines assets into fewer entries, with separate lines where dimensions differ (Sage Intacct, last modified October 1, 2026). An asset can carry several depreciation rules, one per book, each creating its own schedule (Sage Intacct, last modified October 8, 2026).
NetSuite Fixed Assets Management. This SuiteApp writes depreciation journal entries from summary records rolled up by parent asset, sub-category or asset type (Oracle NetSuite, no date shown). With Multi-Book Accounting, depreciation runs and journal entries are created per accounting book (Oracle NetSuite, no date shown). Tax depreciation set up as alternate methods is tracked for reporting but is not linked to journal postings (Oracle NetSuite, no date shown).
Sage Fixed Assets. This standalone product keeps five predefined books (Tax, Internal, State, AMT and ACE) plus 15 user-defined books (Sage, version 2026.1, published December 12, 2025). Its GL links send the depreciation entry to a supported GL or export a file to import, using the expense and accumulated depreciation accounts on each asset; Sage says users typically post monthly (Sage, version 2026.1, published December 12, 2025). The limitation is the extra step each period. For period-end tasks more broadly, see our guide to ERP for the financial close, and for heavy equipment fleets, our piece on construction equipment depreciation in ERP.
How we researched this
We read the IRS primary sources for 2026 Section 179 limits and bonus depreciation (Rev. Proc. 2025-32, Notice 2026-11, Publications 946 and 527 and the Form 4562 instructions), Deloitte’s public summaries of ASC 360 and ASC 740, and vendor documentation from Sage and Oracle NetSuite, checked on October 11, 2026. We also reviewed the pages that rank for this term, which mostly stop at the basic debit and credit. All worked numbers are illustrations.
Related guides
- Adjusting Journal Entries: 5 Types, Examples, Automation
- GASB 87 Lease Accounting: Entries, Example and Software
- General Ledger Reconciliation: Steps, Frequency and Review
Frequently asked questions
What is the journal entry for monthly depreciation?
Debit depreciation expense and credit accumulated depreciation for the month’s charge. Code the expense to the department or cost center that uses the asset. The fixed asset account at cost does not change until disposal.
Is accumulated depreciation a debit or a credit?
Accumulated depreciation is a contra-asset account with a normal credit balance. It grows each month as you post depreciation and is debited when you dispose of the asset. Net book value is cost minus accumulated depreciation.
How do I record depreciation for an asset bought mid-month?
Apply the first-month convention in your capitalization policy. Common choices are half a month for any asset placed in service during the month, a full month if placed in service by the 15th, or a half-year convention. Apply the same choice to every asset in the class.
What is the Section 179 limit for 2026?
For tax years beginning in 2026, the Section 179 expensing limit is $2,560,000. It phases out dollar for dollar once qualifying property placed in service exceeds $4,090,000, according to IRS Rev. Proc. 2025-32. Section 179 affects your tax book only, not the monthly GAAP depreciation entry.
Sources
- IRS, Rev. Proc. 2025-32, section 4.24 (no date shown; released with IR-2025-103, October 9, 2025)
- IRS, IR-2025-103: IRS releases tax inflation adjustments for tax year 2026 (October 9, 2025)
- IRS, Notice 2026-11: interim guidance on the additional first-year depreciation deduction (no date shown)
- KPMG, Notice 2026-11: interim guidance on 100% depreciation deduction (January 14, 2026)
- IRS, Publication 946, How To Depreciate Property (2025) (March 13, 2026)
- IRS, Publication 527, Residential Rental Property (2025) (January 8, 2026)
- IRS, Instructions for Form 4562 (2025) (no date shown)
- Deloitte DART, 2.4 Testing Long-Lived Assets for Recoverability (no date shown)
- Deloitte DART, 2.5 Measurement of an Impairment Loss (no date shown)
- Deloitte DART, 3.3 Temporary Differences (no date shown)
- Sage Intacct, About posting depreciation (last modified October 8, 2026)
- Sage Intacct, Enable automatic posting (last modified October 8, 2026)
- Sage Intacct, About summarized depreciation postings (last modified October 1, 2026)
- Sage Intacct, About depreciation rules (last modified October 8, 2026)
- Oracle NetSuite, Summarizing Journal Entries (no date shown)
- Oracle NetSuite, Running Depreciation on an Accounting Book (no date shown)
- Oracle NetSuite, Alternate Methods (Tax Depreciation Methods) (no date shown)
- Sage, Sage Fixed Assets: Depreciation Books (version 2026.1, December 12, 2025)
- Sage, Sage Fixed Assets Link Process (version 2026.1, December 12, 2025)
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
