Accounting. Chapter 21

Transcription

1 Accunting Chapter 21 Current assets cash and ther assets expected t be exchanged fr cash r cnsumed within a year. Cash, Accunts Receivables, Merchandise Inventry, Supplies and Prepaid Insurance Plant assets: assets that will be used fr a number f years in the peratin f a business. Cmputers, cash registers, furniture, sales display cases. Three majr types f plant assets: equipment, buildings, and land Sectin 21.1 T purchase plant equipment jurnalize and pst same as buying current asset Supplies: debit Plant Assets accunt and credit Cash and pst t general ledger frm entry in Cash Payments Jurnal Real Prperty: land and prperty attached t it. Persnal Prperty: all prperty nt classified as real prperty Assessed Value: value f an asset as determined by tax authrities fr the purpse f calculating taxes Usually based n judgment f assessr Assessrs are elected r specially trained emplyees f gvernment Gvernmental taxing unit determines a tax rate t use in calculating taxes. Tax rate is multiplied by asset s assessed value, nt the value recrded n a business s recrds Assessed value x tax rate = Annual Prperty Tax Paying prperty tax n Plant Assets Debit prperty tax expense and credit cash in cash payments jurnal and pst t general ledger Prperty tax is cnsidered an perating expense Sectin 21.2 A business buys plant assets t use in earning revenue In rder t mach revenue with the expenses used t earn the revenue, the cst f a plant asset shuld be expensed ver the plant asset s useful life. Prtin f a plant asset s cst is transferred t an expense accunt in each fiscal perid that a plant asset is used t earn revenue. Depreciatin Expense: the prtin f a plant asset s cst that is transferred t an expense accunt in each fiscal perid during a plant asset s useful life.

2 Three factrs t cnsider when calculating annual amunts f depreciatin expense Original Cst cst +delivery + installatin Estimated Salvage Value amunt will be able t get when dne with asset residual r scrap value Estimated Useful Life Physical depreciatin caused by wear frm use and deterirating frm age and weather Functinal depreciatin happens when a plant asset becmes bslete r inadequate Land is generally NOT depreciated Estimated useful life shuld be based n prir experience with similar assets and available guidelines Straight-Line Depreciatin: charging an equal amunt f depreciatin fr a plant asset in each year f useful life Original Cst Estimated Salvage Value = Estimated Ttal Depreciatin Expense Estimated Ttal Depreciatin Expense Years f Estimated Useful Life = Annual Depreciatin Expense Calculating Depreciatin Expense fr part f a year Annual Depreciatin Expense Mnths in a Year = Mnthly Depreciatin Expense Mnthly Depreciatin Expense x # f mnths asset is used = Partial Year s Depreciatin Expense Calculating Accumulated Depreciatin 20x0 Accumulated Depreciatin + 20X1 Depreciatin = 20x1 Accumulated Depreciatin Accumulated Depreciatin the ttal amunt f depreciatin expense that has been recrded since the purchase f the plant asset Calculating Bk Value Original Cst - Accumulated Depreciatin = Ending Bk Value Beginning Bk Value Annual Depreciatin = Ending Bk Value Or

3 Bk value f plant asset riginal cst f a plant asset minus accumulated depreciatin Ending bk value is the beginning bk value fr the next year. Sectin 21.3 A separate recrd is kept fr each plant asset Plant Asset Recrd: an accunting frm n which a business recrds infrmatin abut each plant asset Sectin 1 is prepared when the plant asset bught Sectin 2 prvides space fr recrding the dispsitin f the plant asset filled in when dispsed f Sectin 3 prvides space fr recrding annual depreciatin expense and the changing bk value f the asset each year it is used. Analyzing and jurnalizing annual depreciatin expense In the adjustments sectin f the wrk sheet write the ttal annual depreciatin expense in Adjustments Debit clumn n the Depreciatin Expense Stre (Office) Equipment and Credit Accumulated Depreciatin Stre (Office) Equipment and label bth with small letter (g) Add all the annual depreciatin fr all plant assets in that categry and enter that amunt Adjustment fr depreciatin expense planned n the wrk sheet is recrded as an adjusting entry in the general jurnal and then psted t the general ledger Sectin 21.4 When a plant asset is n lnger useful t the business, need t dispse f it by selling, trading fr new asset r discarding Jurnal entry is recrded that details Remve the riginal cst f the plant asset and its related accumulated depreciatin Recgnize any cash r ther asset received fr the ld plant asset Recgnize any gain r lss n the dispsal The amunt f any gain r lss, if any, is calculated by subtracting the bk value frm the cash received Recrding Sale f a plant asset fr bk value In Cash receipts jurnal debit Accumulated Depreciatin Stre (Office) Equipment and credit Stre (Office) Equipment and debit cash Check the type f dispsal and recrd the date n the plant asset recrd

4 The methd t calculate a partial year s depreciatin is the same as calculating depreciatin when an asset is purchase during the fiscal year Recrding Partial Depreciatin Recrd debit t Depreciatin Expense Stre (ffice) Equipment in general jurnal Recrd a credit t Accumulated Depreciatin Stre (Office) Equipment in general jurnal Recrd Depreciatin expense in Sectin 3 f the plant asset recrd, calculate and recrd accumulated depreciatin and ending bk value Gain n Plant Asset revenue that results when a plant asset is sld fr mre mney than bk value Gain r lss n plant asset is the bk value subtracted frm cash received Gain n Plant Asset is classified as Other Revenue in the chart f accunts Recrding a sale f a plant asset fr mre than bk value Recrd an entry in cash receipts jurnal t remve the riginal cst frm Stre (Office) Equipment (credit it) and the amunt f Accumulated Depreciatin Stre (Office) Equipment. Recrd the gain n sale as a credit t Gain n Plant Assets. Recrd the cash received frm the sales as a debit t Cash Fill in the Plant Asset Recrd Lss n Plant Asset: the lss that results when a plant asset is sld fr less than bk value The lss is realized n the dispsal f plant asset is debited t an expense accunt titled Lss n Plant Asset Recrding sale f a plant asset fr less than bk value Sectin 21.5 Recrd and entry in the Cash Receipts Jurnal t remve riginal cst and accumulated depreciatin expense (credit bth) and debit cash and Lss n Plant Asset Fill in the Plant Asset Recrd Straight-line methd f depreciatin charges an equal amunt f depreciatin expense each year. But, nt all assets depreciate the same each year Many plant assets depreciate mre in the early years f useful life than later years s will charge mre depreciatin expense in the early years Declining-Balance Methd f Depreciatin: multiplying the bk value by a cnstant depreciatin rate at the end f the fiscal perid. It is a multiple f the straight-line rate Many businesses use a declining-balance rate that is tw times the straight-line rate and that is the duble declining-balance methd

5 Calculate duble declining-balance methd 1a. Estimated Depreciatin Expense Years f Estimated Useful Life = Straight-Line Rate f Depreciatin 1b. Straight-line rate f depreciatin x 2 = duble declining-balance rate 2. Multiply the duble-declining balance rate by the beginning bk value t determine the annual depreciatin expense fr a given year 3. Subtract the annual depreciatin expense frm the beginning bk value t determine the ending bk value 4. Transfer ending bk value t beginning bk value fr the fllwing year then repeat fr each year except the last year The depreciatin rate is the same but the amunt is different Plants asset is never depreciated belw salvage value s fr the last year f useful life, nly enugh depreciatin is recrded t reduce the bk value f the plant asset t its salvage value.