A depreciable asset is a manufactured asset such as a building, machine, vehicle, or piece of equipment that provides service to a business. Note that we are cycling through the Accounting Examples second and third steps of the accounting equation again. Based on this information which of the following cost flow me… The first purchase cost \( \$ 30 \) and the second cost \( \$ 32 \).

In December, it purchased four small trucks at a cost of $40,000. A physical count of supplies on December 31 shows we have $1,500 remaining on hand. Unearned revenues are money received before work has been performed and is recorded as a liability. We will be moving items that have already been record in our books.

Example 2 – Asset / expense adjusting entry for prepaid insurance

Straight-line depreciation assigns the same amount of depreciation expense to each accounting period over the life of the asset. Before this adjusting entry was made, the supplies asset account had a balance of $8,500. An adjusting entry is used to record the amount of supplies used (supplies expense) during the period. Before this adjusting entry was made, the entire  $ 2,400 insurance payment made on December 1, was a prepaid expense for 12 months of protection. When we record depreciation, we will debit depreciation expense and credit a new account called Accumulated Depreciation.

• The estimated residual value for each truck was $ 1,000, so MicroTrain estimated the total residual value for all four trucks at $4,000 (1,000 x 4 trucks).
• Note that we are cycling through the second and third steps of the accounting equation again.
• The company estimated the useful life of each truck to be four years.
• MicroTrain has a beginning supplies balance of $ 500 and purchased $8,000 in supplies during the period.
• Weiss Company purchased two identical inventory items.
• The  $ 2,200 prepaid expense represents 11 months of insurance protection that remains as a future benefit.

Deferred Items

Prepaid expenses are expenses the company pays for in advance and are assets including things like rent, insurance, supplies, inventory, and other assets. Depreciation expense is the amount of asset cost assigned as an expense to a particular period. MicroTrain has a beginning supplies balance of $ 500 and purchased $8,000 in supplies during the period. When a company purchases supplies in bulk, it is recorded as an asset until the supplies are used.

Which of the following items are initially recorded as an expense on the income statement?

• Prepaid expenses are expenses the company pays for in advance and are assets including things like rent, insurance, supplies, inventory, and other assets.
• Answer the following questions to test your reading comprehension of adjusting entries for deferred items.
• After the adjusting entry, the account balance is $1,500 and matches the amount of supplies from the physical count.
• In time, these assets lose their utility because of (1) wear and tear from use or (2) obsolescence due to technological change.
• Normal credit balance means we will credit the account to increase and debit to decrease.

Beginning supplies + supplies purchases during the period  – physical count of supplies remaining To determine the amount of supplies used during the period, a physical bookkeeping software count is made of the supplies remaining or on hand. We will move a liability to revenue or an asset to an expense. Normal credit balance means we will credit the account to increase and debit to decrease. The company estimated the useful life of each truck to be four years.

Which of the following items are initially recorded as an expense on the income statement?

Weiss Company purchased two identical inventory items. Answer the following questions to test your reading comprehension of adjusting entries for deferred items. The estimated residual value for each truck was $ 1,000, so MicroTrain estimated the total residual value for all four trucks at $4,000 (1,000 x 4 trucks). To illustrate the use of the straight line depreciation formula, let’s return to the MicroTrain Company. In time, these assets lose their utility because of (1) wear and tear from use or (2) obsolescence due to technological change.

Purchased intangibles

The deferred items we will discuss are unearned revenue and prepaid expenses. When the Company sold one of the items for \( \$ 40 \), it expensed \( \$ 30 \) to its cost of goods sold account. And it reports accumulated depreciation in the balance sheet as a deduction from the related asset. MicroTrain reports depreciation expense in its income statement. Accumulated Depreciation is an asset account but it is a contra-account meaning it works opposite the way accounts typically work and has a normal CREDIT balance.

The  $ 2,200 prepaid expense represents 11 months of insurance protection that remains as a future benefit. On the income statement for the year ended December 31, MicroTrain reports one month of insurance expense,  $ 200, as one of the expenses it incurred in generating that year’s revenues. MicroTrain Company purchased for cash an insurance policy on its trucks for the 12 month period beginning December  1. The balance in the Unearned Service Revenues liability account established when MicroTrain received the cash will be converted into revenue as the company performs the training services.

Struggling with Financial Accounting?

Since companies gradually use up these assets over time, they record depreciation expense on them. After the adjusting entry, the account balance is $1,500 and matches the amount of supplies from the physical count. It reports the remaining amount of the prepaid expense,  $ 2,200, as an asset on the balance sheet. On December 31, an adjusting journal entry is made because it is the end of an accounting period and MicroTrain has not used all of the insurance they paid for.