The asset loses its value after usage and technical obsolescence to which we called the decline in the value of the asset. Such a decline is called Valuation reserve or offset accounts or contra accounts. This decline may be for both current and fixed assets and are usually treated via headings such as allowances for doubtful debt and allowance for depreciation.
Journal Entries
| Depreciation expense | Debit | |
| Allowance for depreciation | Credit |
Closing entry – Passed at the end of the reporting period
| Income & Expense Summary | Debit | |
| Depreciation Expense | Credit |
The balance sheet is prepared as follows:
Non-Current Assets
| Plant and Equipment | xxx | |
| Less: Allowance for depreciation | (xx) | xxx |