LECTURE NOTES FOR CHAPTER 10

LECTURE NOTES FOR CHAPTER 10 - 1 LECTURE NOTES FOR CHAPTER...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
LECTURE NOTES FOR CHAPTER 10 “Assets” can be broken down into several categories such as “current”, “fixed”, and a few other categories that we’ll discuss later. In this chapter, the star of the show is “fixed assets” We’re talking about such items as Land, Building, and Equipment. Fixed assets are physically large, like equipment, expensive, like land and will last a long time, like a building AND will actually be used in the business. If any of these items are bought strictly with the intention of selling them later at a profit, then they would be classified as “Investments” rather than fixed assets. What we’ll be learning to do in this chapter is: (1) How to determine the cost of a fixed asset and to record its purchase. (2) How to compute, revise and record depreciation expense (3) How to dispose of the asset when we are finished with it. Determining the cost of a fixed asset Whenever a company purchases a fixed asset, they pay not only for the asset itself, but also for miscellaneous items such as sales tax, freight charges to get the item from the seller’s place to the buyers place, and quite often there are installation cost involved. QUESTION: What does the accountant do with these miscellaneous charges? As is the case so many times in accounting, “It Depends” If these charges are necessary to get the machine “up and running” then we will add them to the cost of the asset. TERMINOLOGY TIME: The act of adding miscellaneous costs to the cost of the asset is called CAPITALIZING. If however, these cost are not necessary to get the machine “up and running”, they will be written off to expense. These items are said to be EXPENSED. Thus, miscellaneous cost associated with the purchased of a fixed asset will be either expensed or capitalized. Examples of items that would be expensed might be if our employees were taking the asset off the truck and they dropped it and damaged it. After the item was damaged, certainly it is necessary to repair it; however, it was not necessary to damage it in the first place. Therefore, the cost of the repair would be written off to “Repairs Expense”. (Expensed) and NOT added to the cost of the asset. Another example of a miscellaneous cost that would be expensed would be if after purchasing the asset, you were bringing it back to your place and you got a speeding ticket. The cost of the ticket would be written off to expense (Expensed) since it was not a necessary cost of getting the asset “up and running” For a list of cost that would be added to the cost of the asset (Capitalized) look on page 443. Don’t try to memorize the entire list, just remembers a couple from each category. Thus, if we paid $1,000 for a piece of equipment and also had to pay $80 in sales taxes $50 freight charges to have the asset transported from the sellers place to our place, and then pay $200 installation charges, the entry to record the purchase would be: Equipment 1,330 Cash 1,330 Notice that there is no breakdown as to how much of the $1,330 went for sales tax, how much went for freight, etc, reason is that nobody cares. All of the costs are just 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
“lumped” into the cost of the asset. Again, for the umpteenth time, adding the
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

LECTURE NOTES FOR CHAPTER 10 - 1 LECTURE NOTES FOR CHAPTER...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online