A company purchased a new machine on January 1, 2014. The supplier, "Forever supply" was paid $2,000 in cash. In addition, transportation and installation were $180 (paid in cash), legal costs associated with the asset were $20 (paid in cash). The machine has an estimated life of 5 years and an estimated salvage value of $300. It is company policy to use straight line depreciation for all of its machines. question: record the journal entry related to the purchase of the asset. Also, Record the first year depreciation expense in a journal entry. Include the classification of the accounts and clearly label your debits and credits.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company purchased a new machine on January 1, 2014. The supplier, "Forever supply" was paid $2,000 in cash. In addition, transportation and installation were $180 (paid in cash), legal costs associated with the asset were $20 (paid in cash). The machine has an estimated life of 5 years and an estimated salvage value of $300. It is company policy to use straight line
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