On December 31, 2017, Swifty Inc. has a machine with a book value of $1,015,200. The original cost and related accumulated depreciation at this date are as follows. Machine   $1,404,000 Less: Accumulated depreciation   388,800 Book value   $1,015,200 Depreciation is computed at $64,800 per year on a straight-line basis.Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.           A fire completely destroys the machine on August 31, 2018. An insurance settlement of $464,400 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit August 31, 2018                 (To record current depreciation.)     August 31, 2018                                 (To record loss of the machine.)         SHOW LIST OF ACCOUNTS LINK TO TEXT

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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.