Chapter 10, Problem 4APSA

To determine

Depreciation:

Depreciation means depletion in the value of the asset due to continued utilization in the processes. It turns the asset obsolete after a certain period of time.

Journal Entries:

Journal entries are the basic entries recoded as per the transactions being entered into by the business in its day to day operations in a chronological order.

Accounting rules regarding journal entries:

• Balance increases when: assets, losses and expenses are debited and liabilities, gains and incomes get credited.
• Balance decreases when: assets, losses and expenses get credited and liabilities, gains and incomes are debited.

To prepare:

Journal entries.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 1	New loader		287,600
	Sales tax		11,500
	Transportation cost		1,500
	Cash			300,600
	(Being cost incurred for purchasing loader recorded)

     Table (1)

• The loader is an asset for the company and by purchasing it; it will increase the asset of the company hence, debit new loader.
• Sales tax is an expense and it decreases the asset of the company hence debit sales tax expenses.
• Transportation cost is an expense for the company which decreases the asset of the company hence, debit transportation expenses.
• On account of payment for the expenses, the cash as an asset is decreased hence credit cash account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan. 3	Cab enclosing expenses		4,800
	Cash			4,800
	(Being expenses recorded for enclosing cab)

     Table (2)

• Cab enclosing expenses decrease the assets of the company hence debit all expenses and losses.
• Cash is an asset which is decreased by paying for cab enclosing expenses hence credit cash account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan. 3	Depreciation		70,850
	New loader			70,850
	(Being annual straight line depreciation on loader recorded.)

     Table (3)

• Depreciation is an expense which decreases the value of asset hence debit depreciation account.
• New loader is an asset the value of which is decreased on depreciating the assets value hence credit new loader account.

2017

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan 1	Overhauling expenses		5,400
	Cash			5,400
	(Being overhauling expenses paid.)

     Table (4)

• Overhauling expenses decrease the asset hence debit overhauling expenses.
• Cash is an asset which is decreased on paying the overhauling expenses hence credit cash account.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Feb. 17	Repairs		820
	Cash			820
	(Being repair expenses paid in cash recorded)

     Table (5)

• Repairs expenses decrease the asset hence debit overhauling expenses.
• Cash is an asset which is decreased on paying the overhauling expenses hence credit cash account

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Jan. 3	Depreciation		43,590
	Loader			43,590
	(Being annual straight line depreciation on loader recorded.)

     Table (6)

• Depreciation is an expense which decreases the value of asset hence debit depreciation account.
• Loader is an asset the value of which is decreased on depreciating the assets value hence credit new loader account.