Dictionary / Reserve for Depreciation
What does Reserve for Depreciation mean in accounting?
Quick definition
Accrual & timingRecord of the accumulation of periodic depreciation charges. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
Read more below
Examples
The contra grows at each close
You run an ice house. At the June 30 close you post $193 of depreciation on a used 40-can ice hoist from an ice-equipment supplier: depreciation expense hits the P&L for $193, and the credit goes to reserve for depreciation, which was $2,895 on May 31 and is $3,088 after the close. On the balance sheet the hoist still shows its $12,850 cost; the credit does not write that fixed asset down. In QuickBooks Online this credit usually lands on an account labeled accumulated depreciation, the same reserve under the newer name. Match the fixed-asset schedule accumulated column to the general ledger: both should be $3,088, not $193.
Crediting the pasteurizer hides the split
You run a dairy. In October you want leftover book on the used 30-gallon vat pasteurizer from a dairy-equipment supplier to show on Equipment itself, so you credit Equipment $5,890 instead of reserve for depreciation. Equipment now shows $10,940, not the $16,830 you paid. Original cost and the wear sit in one number, so net book value is no longer a subtraction you can check on the fixed-asset schedule. Reverse the $5,890 onto Equipment and credit reserve for depreciation; in QuickBooks Online that credit account is usually labeled accumulated depreciation, so do not open a second reserve account beside it.
Why it matters
Reserve for depreciation is the older name for the running total of depreciation already charged, and you will see it at every close if you keep equipment, vehicles, or furniture on a fixed-asset schedule: each accounting period adds this period's slice, and the offset account grows while the asset stays at cost. QuickBooks Online usually labels that contra-account accumulated depreciation, not reserve for depreciation; it is the same credit. Treat the reserve as this month's depreciation expense and profit looks wrecked; credit the asset itself instead of the reserve and you hide original cost, so net book value is no longer a subtraction you can check. Keep cost on the asset line, let the reserve grow, and read leftover book as the difference.
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What is Reserve for Depreciation in bookkeeping?
Record of the accumulation of periodic depreciation charges.
When should I use Reserve for Depreciation?
Use Reserve for Depreciation when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Reserve for Depreciation?
Reserve for Depreciation is used for reserve for depreciation entries, while Raw Materials covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.