Question

Part I

Claudia is learning about depreciation and she is getting a little frustrated with the idea of accumulated depreciation. "Why can’t you just debit depreciation expense and credit equipment?" She complains. "It would be so much easier that way!"

(1) What type of account is accumulated depreciation and why does it get used in the depreciation of fixed assets instead of doing it Claudia's way?

(2) Does accumulated depreciation have a debit balance or a credit balance?

Part II

Benny, an inexperienced accountant at Ace Plus, is about to post the monthly depreciation entries for the company's fixed assets. The depreciation amounts have already been calculated on a spreadsheet by the owner, who is not very knowledgeable in accounting. Benny's instructions are to post the following depreciation amounts for the month:

Building - $1,100

Land - 500

Equipment - 800

What will Benny's journal entries look like if they are done correctly? Can each item "share" an accumulated depreciation account or should each type of asset have its own?

Answer 1

hi students

Please see below answer.

Part I

(1) What type of account is accumulated depreciation and why does it get used in the depreciation of fixed assets instead of doing it Claudia's way?

Ans. Accumulated depreciation is the total depreciation for a fixed asset that has been charged to expense since that asset was acquired and made available for use. The accumulated depreciation account is an asset account with a credit balance (also known as a contra asset account); this means that it appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

The amount of accumulated depreciation for an asset will increase over time, as depreciation continues to be charged against the asset. The original cost of the asset is known as its gross cost, while the original cost of the asset less the amount of accumulated depreciation and any impairment is known as its net cost or carrying amount.

The amount of accumulated depreciation for an asset will increase over time, as depreciation continues to be charged against the asset. The original cost of the asset is known as its gross cost, while the original cost of the asset less the amount of accumulated depreciation and any impairment is known as its net cost or carrying amount.

The most basic difference between depreciation expense and accumulated depreciation lies in the fact that one appears as an expense on the income statement, and the other is a contra asset reported on the balance sheet. Both pertain to the "wearing out" of equipment, machinery or another asset, and help to state a true value for the asset.

(2) Does accumulated depreciation have a debit balance or a credit balance?

Accumulated Depreciation have a credit Balances always. Accumulated depreciation is initially recorded as a credit balance when depreciation expense is recorded. Depreciation expense is a debit entry (since it is an expense), and the offset is a credit to the accumulated depreciation account (which is a contra account).

Part II

What will Benny's journal entries look like if they are done correctly? Can each item "share" an accumulated depreciation account or should each type of asset have its own?