Chapter 4 Depreciation Concept

Chapter 4 Depreciation Concept - Chapter 4 Page 169170...

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Chapter 4 Page 169–170 Depreciation Concept Depreciation Concept On Jan 1, 2009 you purchase a truck for $20,000 . Assume it will have a useful life of 6 years. If you expensed it when purchased, you would overstate the current year’s expenses, thus understating Net Income. Over the remaining years of useful life of the truck, it will result in understating those years’ expenses and overstating Net Income. Instead you set it up as an asset account to record original cost. Then establish a related contra asset account (Accumulated Depreciation), with an offsetting account to record Depreciation Expense, which decreases its book value each year. Also assume that at the end of 6 years you think you could dump it for $2,000 (salvage value). Date DR CR 12/31/09 Depreciation Expense 3,000 Accumulated Depreciation 3,000 ($20,000 less $2,000 = $18,000 / 6 years = $3,000 per Year) After 6 years your General Ledger would reflect the following… Accumulated Depreciation Date Source DR CR Bal
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Chapter 4 Depreciation Concept - Chapter 4 Page 169170...

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