Memo Act 301

Memo Act 301 - Memorandum To: Heidi P. Musician From:...

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Memorandum To: Heidi P. Musician From: Christina Hoppe Subject: Financial Information Date: February 25, 2008 Introduction In this memo I will discuss and explain how to treat the different types of assets held in the store and different depreciation methods that could be used for the instruments as they are being used for lessons. I will also discuss ways to recognize the revenue being made from the lessons. Assets held in store Each class of asset has different ways to be treated depending on how it is used and/or sold. New equipment held for sale When you purchase a new instrument, debit the inventory account. When you sell the instrument, debit cost of goods sold and credit inventory. This is the same way you have been doing it in the past. This method is correct for new equipment purchases. Equipment held for use during lessons The equipment is being used to generate revenue, so it must be depreciated, either by straight-line or units of production. Units of production would be a good method for your situation. You must recognize both expenses and the revenue gained through the lessons. To recognize the revenue, you must wait until it is earned. Create an inventory in use account, when you take a new instrument, credit the new inventory account and debit the inventory in use account. Equipment previously used, now held for sale When you depreciate the value of the equipment and you reach the limit of 300 uses, you can sell it for the amount you chose of 40% of the original cost of the
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This note was uploaded on 03/27/2008 for the course ACCT 301 taught by Professor Schrieber during the Spring '08 term at Wisconsin.

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Memo Act 301 - Memorandum To: Heidi P. Musician From:...

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