During the fiscal year ended December 31, 2021, Dorsey Foods Inc. sold gift certificates to Birdie Corp. for a total of $15,000. How would this transaction be reflected in the financial statements of Dorsey for the fiscal year ended December 31, 2021? Assume none of the gift certificates had been redeemed by the end of the fiscal year. Increase to assets; Increase to sales revenue. No change to assets; Increase to liabilities. Increase to liabilities; Increase to sales revenue. Increase to assets; Increase to liabilities. None of the answers are correct.
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.
Treatment of Issuing of Gift Card :— The sale of a gift certificate should be recorded with a debit to Cash and a credit to a liability account such as Gift Certificates Outstanding. Note that revenue is not recorded at this point.
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