Question

1. Please describe and give examples of some claims that may be settled with something other than cash

2. Define and explain what you understand by the depreciation expense and accumulated depreciation. On which statement are they reflected?

Answer 1

1. Claims may be settled with cash or with non cash. When it is settled with non cash book entries need to be passed to reflect the transaction in books of account. Examples include:

• · Exchange transactions like land exchange with note payable or equipment exchange with bank loan payable includes no cash and book entries will be passed to settle them
• · Settlement of transactions in stock trading. In these cases stock will be delivered to demat account

2. Depreciation expense is a charge for the assets used. Depreciation is continuous and gradual fall in the value of asset. All assets are depreciated except land. Depreciation expense is charged to Income statement based on matching principle. Accumulated depreciation is sum of cumulative depreciation expense charged to income statement. It is reduced from Gross book value of asset to arrive at net book value of asset. Depreciation expense is shown on income statement and Accumulated Depreciation is shown as deduction from Gross book value of asset in Balance sheet.