BSBFIA401 Learner Guide Topic 2.pdf - BSBFIA401 PREPARE...

This preview shows page 1 - 4 out of 8 pages.

BSBFIA401 PREPARE FINANCIAL REPORTS LEARNER GUIDE TOPIC 2 – RECORD GENERAL JOURNAL ENTRIES FOR BALANCE DAY ADJUSTMENTS
BSBFIA401 Prepare financial reports Learner Guide Copyright © Mentor Education Pty Ltd RTO 21683 V1.0 2 TOPIC 2 - RECORD GENERAL JOURNAL ENTRIES FOR BALANCE DAY ADJUSTMENTS RECORD DEPRECIATION OF NON-CURRENT ASSETS AND DISPOSAL OF FIXED ASSETS IN ACCORDANCE WITH ORGANISATIONAL POLICY, PROCEDURES AND ACCOUNTING REQUIREMENTS A fixed asset accounting system is a system of policies, procedures, and methods for recording and reporting monetary amounts associated with fixed asset transactions. These transactions include purchase, revaluation, depreciation, disposal and sale of the asset. It is important to account for these transactions properly because it affects the accuracy financial records and reports of the company. Generally accepted accounting principles, or GAAP, require fixed assets to be depreciated on a periodic basis. Additionally, in accounting the record depreciation of non-current assets should be provided under the matching principle. Because of gradual decrease in assets’ cost during its useful life and revenue that was generated by these assets, it is reasonable to match revenues with related expenses. That also means that if the full amount of depreciation is split into parts for the purpose of accounting, the same should be done with the revenues generated by the said asset. The deprecation journal entry differs from other entries in the way that it actually does not record an event in business activity, but records instead the use of an asset as time passed. After a company has chosen a method of depreciation, the company accountant should make a debit record for depreciation expense and the accumulated depreciation is credited at the end of each fiscal year, until the end of the asset’s useful life. Depreciation expense account is shown in the Income Statement while Accumulated Depreciation appears in the Balance Sheet showing the reduced cost of an asset. There will be no journal entries for depreciation expense when asset’s cost become zero because of continuous decrease of its cost. Going back to the example of straight-line method of depreciation, where company A bought a piece of equipment for $0.5 million, expected salvage value was established at $3000, and the useful life of this purchased equipment was set at 10 years, journal entries should be as follows: Table 1 Name of account Debit Credit Depreciation Expense $99,400 Accumulated Depreciation $99,400 Total $99,400 $99,400 Table 1. Journal entries for depreciation expense There are two reasons for a company to dispose of a fixed asset: it was decided not to use it or if the asset is sold off. These transactions need to be reflected accordingly. In the first situation, a company does not receive any payment in return for writing-off an asset. The journal records will be as follows:
BSBFIA401 Prepare financial reports Learner Guide Copyright © Mentor Education Pty Ltd RTO 21683 V1.0 3 Table 2 Name of account Debit Credit

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture