Accounting Chapter 3 Notes

A contra account is paired with and follows its

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Unformatted text preview: s May 2 500 May 15 200 May 31 100 May 31 100 Balance 600 Balance 100 - Supplies then enter June with a 600 balance, and the adjustment process is repeated each month. Depreciation - Plant Assets: Long lived tangible assets used in the operation of a business. (Ex: Land, buildings, furniture) - As a business uses the assets, their value and usefulness decline. It then becomes expenses - Depreciation: Allocation of a plant asset’s cost to expense - Land is an exception. We record no depreciation for land. Similarity to Prepaid Expenses - Concept of accounting for plant assets is the same as for a prepaid expense. The major difference is the length of time it takes for the asset to be used up. Prepaid expense usually expire within a year, but plant assets remain useful for several years May 3 Furniture (A+) 18,000 Cash (A- ) 18,000 Purchased Furniture EX w/ furniture Then posting " ASSETS Furniture May 3 18,000 - If a company believes the furniture will remain useful for 5 years and then be worthless, one way to compute depreciation is to divide the cost of the asset ($18,000) by its expected useful life (5 years). So the depreciation for each month is $300. (18,000/5 years = 3,600/12 months = $300 per month). May 31 Depreciation expense- furniture (E+) 300 Catherine Liou Accounting 121 Feb 17, 2013 Accumulated depreciation – furniture (CA+) 300 To record depreciation of furniture - The depreciation for one month, such as in May 31, is recorded by the following adjusting entry; The Accumulated Depreciation Account - Notice that we credited Accumulated depreciation – furniture and NOT the asset account...
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