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Adjusting Entries (Depreciation)

This document discusses accounting concepts such as depreciation, normal balances, and types of adjustments. It provides an example of calculating annual depreciation for an office equipment purchased for $155,000 with a 10 year useful life and $5,000 salvage value. The annual depreciation is calculated as the depreciation cost ($155,000 - $5,000) divided by the useful life of 10 years, which equals $15,000 per year. Notes are provided to track the accumulated depreciation on the equipment over two years in the statement of financial position.

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Mark Johnson Lee
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43 views2 pages

Adjusting Entries (Depreciation)

This document discusses accounting concepts such as depreciation, normal balances, and types of adjustments. It provides an example of calculating annual depreciation for an office equipment purchased for $155,000 with a 10 year useful life and $5,000 salvage value. The annual depreciation is calculated as the depreciation cost ($155,000 - $5,000) divided by the useful life of 10 years, which equals $15,000 per year. Notes are provided to track the accumulated depreciation on the equipment over two years in the statement of financial position.

Uploaded by

Mark Johnson Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Do not send Cathleen Angelica L.

Rubio

WHEN WILL YOU USE A.E? NORMAL BALANCE


At the end of every accounting period prior to that preparation o ASSET – DEBIT
of financial statement. o LIABILITY – CREDIT
o CAPITAL – CREDIT
o DRAWINGS – DEBIT
o REVENUE OR INCOME –
CREDIT
DEPRECIATION o EXPENSE – DEBIT
 Recording As expense they used portion of the cost of
property plant and equipment (fixed cost).
 the decrease in value of a fixed asset due to use wear, and
tear, obsolescence and passage of time.
 Land is not depreciated because land is assumed has Types of Notes: Asset –
Adjustments Future benefit;
unlimited useful life.
Expense – Past.
 Tangible
 beyond one (1) year
 Depreciation
 not intended for sale.
 Doubtful Accounts or Bad Debts
 Deferred Expense or Prepaid
Expense
EXERCISE  Deferred income
On April 1, 2018, la Carlotta trading purchase an office equipment  Accrued Expense
for 155,000. It has an estimated useful life of 10 years and salvage  Accrued income
value (or scrap or residual value) of 5000.

Annual Cost−Salvage Value


Depreciation=
useful life

Note: Cost minus Salvage value is known


as “Depreciation Cost”.

NOTES TO STATEMENT OF LET SAY IT IS THE


FINANCIAL POSITION 2018 END OF ACCOUNTING
Office Equipment 155,000 PERIOD OF 2019
Less: Accumulated Depreciation 11,250
Total: (Net book Value) 143,000
1
Depreciation Expense 11,250
NOTES TO STATEMENT OF
REAL OR PERMANENT FINANCIAL
ACCOUNT POSITION2018-2019

Office Equipment 155,000


 Balance sheet account: asset, liabilities and capital
Less: Accumulated Depreciation 26,250
including contra-assets and contra-liability accounts.
 Their balance at the end of one accounting period is carried Total: (Net book Value) 128,750
over to the next period.
Depreciation Expense 15,000

NOMINAL OR TEMPORARY
ACCOUNT
DEC312019:
 Income statement accounts: revenue and expenses plus 155,000−5,000
drawings. A.D= = 15,000
10
 Their balance at the end of one accounting period becomes
ZERO as the beginning of the next period (Not carried
over). Why not divided into 12 months? It is
because 15,000 is already for 1 year. From
Dec 31, 2018 to Dec 31, 2019 is 1 year.
While April 1, 2018 to Dec 31, 2018 is only
9 months.

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