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The basic depreciation entry is Depreciation Expense Dr and Fixed Asset or Accumulated Depreciation Cr. In TallyPrime, calculate the amount separately, then record it with a Journal Voucher; the standard fixed-asset ledger does not automatically calculate depreciation from a percentage. This guide covers the calculation, ledger choices, and steps in both TallyPrime and the older Tally.ERP 9. The title’s 2023 date is historical; menu instructions below reflect Tally’s current documented TallyPrime workflow, with ERP 9 steps shown separately.
Depreciation entry at a glance
For a ₹20,000 depreciation charge, the entry may be:
Depreciation Expense—Office Equipment A/c Dr ₹20,000
To Accumulated Depreciation—Office Equipment A/c ₹20,000Alternatively, a business may credit the asset ledger directly:
Depreciation Expense—Office Equipment A/c Dr ₹20,000
To Office Equipment A/c ₹20,000Choose one presentation method in line with the business’s accounting policy and reporting requirements. Do not credit the fixed-asset ledger and also record the same charge in accumulated depreciation: that would reduce the asset’s net value twice.
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Depreciation is a non-cash expense. It allocates an asset’s depreciable amount—generally cost less residual value—over its useful life. It reduces accounting profit and the asset’s carrying value, but it is not a payment and is separate from repairs, maintenance, and the original asset purchase.
Record the purchase first
The purchase entry records the acquisition. Depreciation is a later periodic adjustment:
Office Equipment A/c Dr ₹120,000
To Bank / Supplier A/c ₹120,000When the asset is available for use, record the applicable depreciation charge separately. The accounting policy determines when depreciation begins; it need not always be the purchase date.
Calculate the amount before entering it in Tally
TallyPrime’s documented workflow requires you to calculate depreciation separately and post the result through a Journal Voucher. Its standard fixed-asset ledger or item does not provide a configured percentage for automatic calculation. See TallyPrime’s accounting FAQ.
Straight-line method
Under straight-line depreciation, an equal amount is charged each full year:
Annual depreciation = (Cost − Residual value) ÷ Useful lifeFor an asset costing ₹120,000, with a ₹20,000 residual value and a five-year useful life:
(₹120,000 − ₹20,000) ÷ 5 = ₹20,000 per yearThe equivalent monthly amount is ₹20,000 ÷ 12 = ₹1,666.67. A full-year charge of ₹20,000 can be posted at year-end, or monthly charges can be posted according to the entity’s policy and reporting needs.
Written-down-value method
Under the written-down-value (WDV) method, apply the chosen rate to the opening written-down value:
Depreciation = Opening WDV × rateFor opening WDV of ₹120,000 at 15%, depreciation is ₹18,000, leaving a closing WDV of ₹102,000. The following year’s calculation uses ₹102,000, not the original ₹120,000.
A rate is not meaningful on its own: the asset class, book or tax purpose, method, useful life, residual value, date put to use, and applicable rules all matter.
Part-year use
If the policy calls for prorating a ₹20,000 annual straight-line charge over six months, the amount is ₹20,000 × 6 ÷ 12 = ₹10,000. The period and start-date convention should follow the applicable accounting policy—for example, the date the asset is available for use and any month convention—not an assumption that every business starts depreciation on the purchase date.
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Book depreciation is the charge in the financial accounts under the applicable accounting framework and the entity’s policy. For companies, Schedule II of the Companies Act, 2013 provides useful-life guidance and defines depreciation as systematic allocation of the depreciable amount over useful life. It generally limits residual value to 5% of original cost unless a justified alternative is disclosed. Read the relevant Schedule II material.
Income-tax depreciation is computed under tax rules, generally by prescribed rates for blocks of assets. The Income Tax Department’s Appendix I includes rates such as 10% for furniture and fittings and 15% for ordinary machinery and plant, subject to classification and applicable rules. Under the income-tax rules, assets used for fewer than 180 days in the relevant year generally receive only 50% of the normal depreciation allowance; this is a tax rule, not a universal book-depreciation convention. See the Department’s business or profession guidance.
Do not automatically use an income-tax rate in the books. A business may need a book-depreciation schedule, a separate tax schedule, and deferred-tax adjustments where applicable. Companies, tax-audited entities, and businesses with statutory reporting obligations should confirm the treatment with their accountant.
Set up the ledgers
For a basic setup, create or check these ledgers:
- Depreciation—Office Equipment, under Indirect Expenses.
- Office Equipment, under Fixed Assets.
- Optionally, Accumulated Depreciation—Office Equipment, under Fixed Assets.
Depreciation is an expense, so do not group its expense ledger under Fixed Assets just because the charge relates to an asset. Ledger grouping affects where balances appear in reports.
A single depreciation expense ledger is quick to maintain and may suit a small business with simple year-end entries. Separate ledgers by asset or class make review and reconciliation easier where assets have different lives, methods, or rates, but require more upkeep and a reliable fixed-asset register. Tally’s help documentation supports either one common depreciation ledger or separate ledgers. The credit-side presentation—direct credit to the asset or credit to accumulated depreciation—should likewise follow a consistent accounting policy.
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Enter depreciation in TallyPrime
- Create the depreciation expense ledger under Indirect Expenses; ensure the asset or accumulated-depreciation ledger is correctly grouped under Fixed Assets.
- Press Alt+G, choose Create Voucher, then press F7: Journal.
- Enter the accounting date for the charge.
- On the debit line, select the depreciation expense ledger and enter the calculated amount.
- On the credit line, select either the relevant fixed-asset ledger or accumulated-depreciation ledger, according to the chosen presentation.
- Add a narration that identifies the asset or class, period, and calculation basis—for example, “Annual SLM depreciation on office equipment, year ended 31 March.”
- Press Ctrl+A to save.
These are the documented current steps in TallyPrime’s accounting FAQ. For example, a year-end entry might be dated 31 March and debit Depreciation Expense—Office Equipment ₹20,000, crediting the selected asset or accumulated-depreciation ledger by the same amount.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Enter depreciation in Tally.ERP 9
- Go to Gateway of Tally.
- Select Accounting Vouchers.
- Press F7: Journal.
- Debit the depreciation ledger under Indirect Expenses for the calculated amount.
- Credit the applicable fixed-asset ledger or accumulated-depreciation ledger.
- Enter a clear narration and save the voucher.
The basic accounting is the same, but the navigation and screen labels differ from TallyPrime. The path is documented in the Tally.ERP 9 accounting FAQ.
Monthly, annual, or cost-centre posting?
Tally can record depreciation monthly or at year-end; it does not decide which frequency suits your reporting. Monthly entries help keep monthly profit-and-loss reports and management margins current. A year-end entry may be sufficient when accounts are finalized annually and depreciation is calculated in a separate fixed-asset register. Use a consistent, documented policy and avoid posting both periodic charges and a full-year charge for the same period.
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If you need period-wise tracking, TallyPrime cost categories and cost centres can classify amounts entered in journal vouchers. One possible structure is a “Depreciation” cost category, a “Fixed Assets” cost centre, and sub-centres for months such as April, May, and June. You can review allocations through Cost Category Summary; see Tally’s TallyPrime accounting-entry guidance. Cost centres classify and report the amount—you still calculate and enter depreciation yourself.
Verify the posting and reconcile the asset value
- Open the Profit & Loss report for the period and confirm depreciation appears as an expense.
- Check the Balance Sheet: with direct credit, the asset ledger’s balance should fall; with accumulated depreciation, the asset’s original cost remains and accumulated depreciation reduces its net carrying amount.
- Check the Day Book for the saved journal, correct date, ledgers, amount, and narration.
- For cost-centre tracking, review the Cost Category Summary if configured.
- Reconcile the Tally balances against the fixed-asset register, including opening cost, additions, disposals, depreciation to date, and net book value.
If depreciation is missing from the Profit & Loss report, check that its ledger is under Indirect Expenses, that the voucher is saved and dated within the selected report period, and that you are viewing the correct company and financial year. Also check whether the voucher is optional, post-dated, or excluded from the report.
Common errors and corrections
- Tally is not calculating depreciation: Standard TallyPrime workflow expects a separately calculated amount entered through a journal; the fixed-asset ledger does not calculate it automatically. A separately installed add-on may have different capabilities, which should be checked for compatibility and controls.
- The journal does not balance: Confirm that the debit and credit are equal, the amount was entered on both sides, and rounding has not created a difference.
- The asset value falls twice: Check that the same charge was not credited directly to the asset and also recorded in accumulated depreciation.
- An annual amount was posted every month: A ₹20,000 annual charge entered 12 times totals ₹240,000. State the period covered in the narration and check whether a full-year entry duplicates monthly postings.
- Tax rate was copied into book accounts: Recalculate using the applicable book policy; maintain the tax calculation separately when required.
- Asset cost or date is wrong: Review directly attributable costs such as installation or freight, recoverable taxes, availability-for-use date, and any disposal or major replacement. The correct treatment depends on the applicable accounting framework and facts.
For an unsaved voucher, correct it before accepting. For a saved error, locate it in the Day Book and alter it if accounting records and audit controls permit; otherwise, use a reversing Journal Voucher and enter the corrected charge. For a duplicated entry, a typical reversal is:
Accumulated Depreciation A/c Dr [duplicated amount]
To Depreciation Expense A/c [duplicated amount]Use the actual duplicated amount and an appropriate date, and explain the correction in the narration. If the original entry credited the asset directly, reverse the corresponding asset ledger instead. Do not delete or backdate audited or locked-period entries without considering record-retention, audit, and approval controls.
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Before saving: a quick checklist
- Correct company and financial year; correct voucher date.
- Asset is classified correctly, and the amount follows the applicable book policy.
- Useful life, residual value, method, and partial-year convention are supported.
- Depreciation expense ledger is under Indirect Expenses.
- Only one credit presentation is used for the charge.
- The amount is not duplicated in another monthly, annual, or external schedule posting.
- Voucher narration explains the asset, period, and basis.
- Profit & Loss, Balance Sheet, Day Book, and fixed-asset register have been checked.
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