An equipment asset with a cost of $60,000 has accumulated depreciation of $15,000. If you record annual depreciation of $5,000, what is the journal entry and how does it affect net book value?

• A. Debit Depreciation Expense 5,000; Credit Accumulated Depreciation 5,000. NBV decreases by 5,000.
• B. Debit Depreciation Expense 60,000; Credit Accumulated Depreciation 60,000. NBV decreases by 60,000.
• C. Debit Accumulated Depreciation 5,000; Credit Depreciation Expense 5,000. NBV increases by 5,000.
• D. Debit Depreciation Expense 5,000; Credit Depreciation Expense 5,000. NBV unchanged.

Answer: (B)

Depreciation is recorded as an expense and increases accumulated depreciation, which is a contra-asset. Net book value equals cost minus accumulated depreciation. For this asset, cost is 60,000 and accumulated depreciation before this year is 15,000, so NBV is 45,000. The yearly depreciation is 5,000, so the journal entry is a debit to Depreciation Expense for 5,000 and a credit to Accumulated Depreciation for 5,000. This increases accumulated depreciation to 20,000, leaving NBV at 60,000 − 20,000 = 40,000. Therefore NBV decreases by 5,000. The other options either debit or credit the wrong accounts or use the full asset cost, which would misstate both expense and asset value.