Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

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Multiple Choice

Which costs does a company expense after a long-term asset is put into use in the business?

Acquisition cost

Salvage value

Installation cost

Depreciation expense

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Verified step by step guidance

Understand the concept of depreciation expense: Depreciation is the systematic allocation of the cost of a tangible long-term asset over its useful life. It represents the wear and tear or usage of the asset as it contributes to revenue generation.

Identify the costs associated with a long-term asset: Acquisition cost, salvage value, and installation cost are all part of the initial costs incurred to acquire and prepare the asset for use. These costs are capitalized, meaning they are recorded as part of the asset's value on the balance sheet.

Recognize when depreciation expense begins: Once the long-term asset is put into use in the business, the company starts expensing depreciation. This is done to match the cost of the asset with the revenue it helps generate, following the matching principle in accounting.

Calculate depreciation expense: Use a depreciation method such as straight-line, declining balance, or units of production. For example, in the straight-line method, the formula is:

Depreciation = \frac{Acquisition Cost - Salvage Value}{Useful}

. This calculates the annual depreciation expense.

Record depreciation expense: Each accounting period, the depreciation expense is recorded in the income statement as an expense, and the accumulated depreciation is updated on the balance sheet to reduce the asset's book value.