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ACCT 320 TUTORIAL_Depreciation Methods

# ACCT 320 TUTORIAL_Depreciation Methods - ACCT 320 TUTORIAL...

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ACCT 320 TUTORIAL DEPRECIATION METHODS Overview: Depreciation is the process of allocating the cost of tangible assets to expense in a rational and systematic manner over the periods of use. Spreading the asset’s cost over the period of benefit follows the matching principle. There are several methods used to calculate depreciation. Examples: Straight-line Method Depreciation = (Acquisition Cost-Residual Value)/Useful Life On January 1, we purchase equipment for \$103,000 cash. The equipment has an estimated service life of 10 years and a residual value of \$8,000. Equipment Cash (1/1) 103,000 103,000 (1/1) Accumulated Depreciation Depreciation Expense 9500 (12/31) (12/31) 9500 NOTE: The difference between the asset account and the accumulated depreciation account is referred to as the book value of the asset. At the end of the asset’s life, Book Value = Residual Value In the case of the straight-line method, the amount depreciated each year is the same. However, pay attention to the date the asset was purchased. The amount of

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