Chapter 10: DEPRECIATION Definition: Depreciation is the allocation of the depreciable amount over its estimated useful life.

Causes of Depreciation: 1. Wear and tear 2. Obsolescence 3. Physical factors 4. Defluxion of time

Determination cost of non-current asset: Cost = Purchase Price + Capital expenditures Transportation cost Insurance on purchase of asset the

Taxes on the purchase of asset Installation costs Plate no. Painting of the business name, logo and address

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% x [Cost – scrap value (if any)] Journal Entries: Dr Depreciation xxxx Cr Accumulated Depreciation xxxx Presentation in Financial Statement: Income Statement (extract)… Expenses Depreciation xxxx Balance Sheet (extract)… NCA Machinery Cost xx Accum.depn (xx) Net book value xxxx Chapter 9: Accounting For Accounts Receivable 2 . Depreciation) OR.Methods of Depreciation 1. Straight Line method (SLM) Formula: Cost – scrap value Useful life 2. Reducing Balance method (RBM) Formula: % x (Cost – Accum.

• It is considered as revenue to the business. To record the payment made by ac receivable Dr Cash/Bank xxx Cr Ac receivable (+) Cash/Bank xxx (-) Ac receivable DOUBTFUL DEBT & ALLOWANCE FOR DOUBTFUL DEBT 3 . • It must be deducted from the ac receivable. To record the recovery of bad debt Dr Ac receivable xxx Cr Bad debt recovered (+) Ac receivable xxx IS (+) Revenue 2.BAD DEBT • Uncollectible amount of debt from ac receivable. • Considered as an expense to the business and will be charged to the income statement. Journal Entries: 1. Journal Entries: Dr Bad debt xxx Cr Ac receivable xxx IS (+) expenses (-) Ac receivable BAD DEBT RECOVERED • When payments are received by the ac receivables whose debt has been written off as bad.

Because there are possibilities that a few ac receivable might not be able to settle their debt. Formula: Allowance for Doubtful Debt = % x (Ac receivable – Bad debt) Journal Entries: 1.sheet by reducing the amount of Ac receivable. Increase in AFDD Dr Doubtful Debt xx IS (exp) Cr Allowance for Doubtful Debt xx 3. 1st year recognition Dr Doubtful Debt xx IS (exp) Cr Allowance for Doubtful Debt xx 2. 4 . certain amounts need to be reduced from the existing ac receivable. In the subsequent accounting periods. the increase or decrease in the estimation will be recorded. doubtful debt will be recorded in full. • In the first accounting period. Decrease in AFDD Dr Allowance for Doubtful Debt xx Cr Doubtful Debt xx IS (Other Revenue) **Current year AFDD will be transferred to SoFP/B.• The estimation amount of debt that probably not collected from ac receivable. • Therefore.

• In the first accounting period. In the subsequent accounting periods. 1st year recognition Dr Discount Allowable xx IS (exp) Cr Allowance for Discount Allowable xx 2. Decrease in AFDA Dr Allowance for Discount Allowable xx Cr Discount Allowable xx IS (Other Revenue) **Current year AFDA will be transferred to SoFP/B.sheet by reducing the amount of Ac receivable.AFDD) Journal Entries: 1. discount allowable will be recorded in full. the increase or decrease in the estimation will be recorded. Increase in AFDA Dr Discount Allowable xx IS (exp) Cr Allowance for Discount Allowable xx 3.DISCOUNT ALLOWABLE & ALLOWANCE FOR DISCOUNT ALLOWABLE • The estimation amount of discount that may be allowed to ac receivable who may pay within the discount period. Formula: Allowance for Discount Allowable = % x (Ac receivable – Bad debt . Presentation in Financial Statement Income Statement (extract)… Other revenue Bad debt recovered Decrease in AFDD/AFDA Expenses Bad debt Increase in AFDD/AFDA 5 Balance Sheet (extract)… Current Assets Ac receivable (-) Bad debt (-) AFDD (-) AFDA xx (xx) (xx) (xx) .

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Treated as CA (+) IS Dr Accrued revenue Cr Revenue 7 . Treated as CA (-) IS Dr Prepaid expense Cr Expense Treated as CL (-) IS Dr Revenue Cr Prepaid revenue Accrued Expenses Expenses incurred by a company but yet to be paid and not recorded at all. Treated as CL (+) IS Dr Expense Cr Accrued Expense Accrued Revenue Revenues earned from services that have been performed but neither billed nor collected or recorded.Chapter 8: ACCRUALS AND PREPAYMENTS Prepaid Expenses Prepaid Revenue Known as expense paid in Customers make payment advance in advance to a company for goods or services yet to be provided.