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Principle to the cost of a long lived
asset ? 135 Depreciation
Allocates the cost of an asset to expense
over its useful life – MATCHING
Is an estimate
Depreciation is ALLOCATION of costnot VALUATION(Current Replacement
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.
made . . .
credit) The asset’s
credit) At end of
period . . .
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.
Cost of the asset
expense (per =
Estimated useful life
period) $40 = $2,400
60 138 Office Equipment
$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
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
Less : accumulated depreciation $ 5,000
40 $4,960 Book Value or
141 Assets That A Company Depreciates...
Should be shown at cost less accumulated depreciation Assets
Less: Accumulated Depreciation
Total assets COST 5,000
__ 40 $ 2,000
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
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.
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.
Oct 2 1,200 Oct. 31 400 Oct 2 GENERAL JOURNAL
Oct 31 Unearned Service Revenue
To record revenue earned Service
Oct. 31 400 1,200 Debit Credit 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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