Review for AC202

Equals cost of goods or services used up or expired

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Unformatted text preview: ching Principle to the cost of a long lived asset ? 135 Depreciation Allocates the cost of an asset to expense over its useful life – MATCHING PRINCIPLE Is an estimate Depreciation is ALLOCATION of costnot VALUATION(Current Replacement Cost) We’re not attempting to reflect the actual change in value of an asset! 136 The Concept of Depreciation The portion of an asset’s utility that is used The portion of an asset’s utility that is used up must be expensed in the period used. up must be expensed in the period used. Fixed Fixed Asset Asset ((debit) debit) On date when initial payment is made . . . Cash Cash ((credit) credit) The asset’s usefulness is partially consumed during the period. Accumulated Accumulated Depreciation Depreciation ((credit) credit) At end of period . . . Depreciation Depreciation Expense Expense ((debit) debit) 137 Depreciation Is Only an Estimate On October 1, a company purchased office equipment with a useful life of 60 months (5 years) for $2,400 cash. Using the straight­line method, calculate the monthly depreciation expense. Depreciation Cost of the asset expense (per = Estimated useful life period) $40 = $2,400 60 138 Office Equipment Oct $40 Nov $40 Dec $40 Jan $40 Feb $40 Mar $40 Apr $40 May $40 June $40 July $40 Aug $40 Sept $40 Depreciation= $480/year 139 Office Equipment Accumulated DepreciationOffice Equipment Oct 2 5,000 Oct 31 40 GENERAL JOURNAL Oct 31 Depreciation Expense Accumulated Depreciation-Office Equip Depreciation Expense Oct 31 40 Debit Credit 40 40 To record monthly depreciation Accumulated depreciation is a contra asset account ­ an offset against the fixed asset account. 140 Balance Sheet Presentation Office equipment Less : accumulated depreciation $ 5,000 40 $4,960 Book Value or Carrying Value 141 Assets That A Company Depreciates... Should be shown at cost less accumulated depreciation Assets Cash Accounts receivable Supplies Equipment Less: Accumulated Depreciation Total assets COST 5,000 __ 40 $ 2,000 4,000 1,800 Book Value 4,960 $12,760 Total Depreciation Expensed to Date 142 Unearned Revenue (initially recorded as liabilities) Examples Include: Airline Ticket Sales Sports Teams’ Sales of Season Tickets Custom Made Cabinet With Down Payment Required 143 Unearned Revenues Received on Oct. 2 $1,200 for advertising services expected to be completed by Dec 31. Unearned Service Service Revenue Revenue Cash Oct 2 1,200 Oct 2 1,200 GENERAL JOURNAL Debit Oct 2 1,200 Cash Unearned Service Revenue Collected money for work to be performed by Dec 31. Credit 1,200 144 Unearned Revenues During October $400 of the revenue was earned. Unearned Service Revenue Cash Oct 2 1,200 Oct. 31 400 Oct 2 GENERAL JOURNAL Oct 31 Unearned Service Revenue Service Revenue To record revenue earned Service Revenue Oct. 31 400 1,200 Debit Credit 400 400 145 Unearned Revenue IInitially, revenues that benefit more than one nitially, revenues that benefit more than one accounting period are recorded as lliabilities.....
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