Topic 10: Accounting for Non-Current Assets & Liabilities Flashcards
What is Depreciation?
Depreciation is a method for allocating the cost of an asset over its useful life based on its pattern of use.
What is the Journal entry for a depreciation expense?
Dr Depreciation Expense
Cr Accumulated Depreciation
What is the ‘Cost’ of an Asset?
It is the sum of all costs incurred to bring the asset to the location and condition necessary for its intended use.
What is the Residual Value?
It is an estimation of the value of the asset at the end of its useful life.
What is the Depreciable Amount?
It is the amount we calculate the depreciation expense on for the Straight Line and Units of Production. Cost - Residual Value = Depreciable Amount
What is an assets Useful Life?
It is the estimated length of time the business will use the asset. It may be expressed in years and units e.g., hrs, kms.
What is Accumulated Depreciation?
It is the total of each years Depreciation Expense for that item.
What is Carrying Amount?
It is the cost of the asset minus the accumulated depreciation.
What are the 3 most common Depreciation Methods?
- Straight Line Method
- Units of Production Method
- Reducing Balance Method
