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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Adjusting entries for depreciation; effect of error

On December 31, a business estimates depreciation on equipment used during the first year of operations to be $13,900.

  1. a. Journalize the adjusting entry required as of December 31.
  2. b. If the adjusting entry in (a) were o mitted, which items would be erroneously stated on (1) the income statement for the year and (2) the balance sheet as of December 31?

(a)

To determine

Depreciation

Depreciation is an accounting method which is used to reduce the monetary value of fixed assets (except land), over a period of time due to use, wear and tear or obsolescence. It is also used to allocate the cost of asset over its life span.

Adjusting Entries

Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

To prepare: The adjusting entry for depreciation expense.

Explanation

  • Depreciation expense is an expense, and it is increased by $13,900. So debit depreciation by $13,900...

(b)

To determine

To identify: The items that would be erroneously stated on the income statement and on the balance sheet, if the adjusting entry for depreciation is omitted.

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