How do I compute the units of production method of depreciation? Definition of Units of Production Depreciation The units of production method of depreciation (which is also referred to as the units of activity method)...
How do I compute the units of production method of depreciation? Definition of Units of Production Depreciation The units of production method of depreciation (which is also referred to as the units of activity method)...
What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
Bookkeeping Video Training Part 9 Adjusting entries: depreciation expense and accumulated depreciation reported on financial statements, useful life of the asset Must-Watch Video Learn How to Advance Your Accounting and...
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
and the depreciation expense begins. This expense will reduce the company’s profits (net income, earnings). There may also be some additional revenues and costs, and perhaps cost savings, that will also affect the...
With regard to depreciation, what does the term mid-month convention mean? Definition of Mid-Month Convention In depreciation, the mid-month convention means that an asset placed into service anytime during a given...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
What is the entry to remove equipment that is sold before it is fully depreciated? Entries To Record a Sale of Equipment When equipment that is used in a business is disposed of (sold) for cash before it is fully...
Why isn't land depreciated? Definition of Land The land that is used in a business (as opposed to land that is an investment, or land that will be sold by a real estate developer) is a tangible asset that is assumed to...
What is a fully depreciated asset? Definition of Fully Depreciated Asset A fully depreciated asset is a plant asset or fixed asset where the asset’s book value is equal to its estimated salvage value. In other words,...
of a noncash expense is depreciation. To illustrate, let’s assume that a company purchased equipment two years ago for a cash payment of $200,000. The company determined that the equipment had a useful life of 10...
balance in a contra asset account will violate the cost principle.) Examples of Contra Asset Accounts The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with...
What is the accounting treatment for an asset that is fully depreciated, but continues to be used in a business? An asset that is fully depreciated and continues to be used in the business will be reported on the balance...
Can a fully depreciated asset be revalued? A fully depreciated asset cannot be revalued because of accounting’s cost principle. Definition of a Fully Depreciated Asset A fully depreciated asset is one that has...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
the following information: December 31 (and the year) Depreciation Expense $10,000 (in the debit column) Accumulated Depreciation $10,000 (in the credit column) A short explanation such as “Depreciation for the...
that are reported on the statement of cash flows in the section entitled cash flows from investing activities. When the equipment is placed into service, the company will begin to report depreciation expense on the...
the reasons why a company can have an accounting net loss but have a positive net cash inflow. Example of Net Loss But a Positive Cash Flow A common adjustment to a company’s accrual accounting net income or net loss...
Buildings is a noncurrent or long-term asset account which shows the cost of a building (excluding the cost of the land). Buildings will be depreciated over their useful lives by debiting the income statement account...
What are phantom profits? The terms phantom profits or illusory profits are often used in the context of inventory (but can also pertain to depreciation) during periods of rising costs. The amount of phantom or illusory...
be reflected in the company’s general ledger accounts: Any unrecorded depreciation up until the time of the sale must be recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation The...
A long-term asset which indicates the cost of the constructed improvements to land, such as driveways, walkways, lighting, and parking lots. Land Improvements will be depreciated over their useful life by debiting the...
A long term asset account containing the cost of delivery equipment acquired by a company and used in its business. The account will appear on the balance sheet under the heading of Property, Plant and Equipment. There...
Equipment is a noncurrent or long-term asset account which reports the cost of the equipment. Equipment will be depreciated over its useful life by debiting the income statement account Depreciation Expense and crediting...
of Indirect Costs For example, the depreciation of a company’s manufacturing building is an indirect cost of the following: The manufacturing departments within the building The products that are manufactured in the...
If the fully depreciated car continues to be used, there will be no further depreciation. The company cannot depreciate more than the car’s cost. If the fully depreciated car is sold or scrapped, the following...
What is the difference between reserve and allowance? More than 60 years ago, accountants in the U.S. used Reserve for Bad Debts as the title of the contra account associated with Accounts Receivable or Loans Receivable....
of property, plant, and equipment. Depreciation of the Building and Equipment is a Fixed Cost The depreciation expense associated with a company’s buildings and machinery is considered to be a fixed cost or a fixed...
How do you calculate an asset's salvage value? Definition of Asset Salvage Value In accounting, an asset’s salvage value is the estimated amount that a company will receive at the end of a plant asset’s useful...
computed using replacement costs. This smaller amount of costs charged to the income statement means reporting greater profit. The difference in the profit is said to be illusory. In the case of plant assets used during...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
What does the cost principle mean for a company's income statement? If a company has buildings, equipment and inventory, the cost principle will mean that the amount of depreciation expense and the cost of goods...
of the sale. In order to know the asset’s book value at the time of the sale, the depreciation expense for the asset must be recorded right up to the date that the asset is sold. If the cash received is greater than...
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