Principles of Accounting I Chapter 4 Notes - 1 Explain the purpose of adjusting entries Performed at the end of the accounting period to adjust the

Principles of Accounting I Chapter 4 Notes - 1 Explain the...

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1.Explain the purpose of adjusting entries.2.Prepare adjusting entries to convert assets to expenses.Question! If we do not record this type of adjusting entry will NI be overstatedunderstated or no effect?, BRIEF EXERCISE 4.2(a)Feb. 1stPrepaid Rent525Cash525Feb. 28thRent Expense175Prepaid Rent175--- What is the balance in the prepaid rent account on feb 28? 350--- If this adjusting entry was not done would NI be overstated or understated and by how much? Overstated by 175Depreciation- type one adjusting entry Depreciation is the allocation of costs of depreciable assets to expenses over the assets useful life. (pg 146)When you record depreciation DO NOTreduce the asset account. Instead increase the contra asset account (accumulated depreciation)Dr. Depreciation ExpenseCr. Accumulated Depreciation Contra Asset- has a credit balance, is used to offset an asset account.(pg. 148)*Depreciation expense per period = Cost of asset / estimated useful life*Book Value = Cost of asset – accumulated depreciationBRIEF EXERCISE 4.4Jan 2. Dr. Equipment 72,000Cr. Cash72,000
b. --What is the total depreciation expense for the YEAR? -- What is the total depreciation expense for the month?--What is the total accumulated depreciation at the end of year one?

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