Chapter 10, Problem 10.2ADIE

To determine

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Depreciation: Depreciation refers to a method of accounting under which the value of a fixed asset is written off during the life of that asset.

Accumulated Depreciation: Accumulated depreciation refers to the cumulative depreciation charged on the asset every year till date. It is a contra-asset account which is credited when depreciation is charged. It is shown as a deduction from the asset in the balance sheet.

Salvage Value: Salvage value refers to that amount of fixed asset which remains unallocated in the form of depreciation at the end of its useful life and can be recovered from resale.

Useful Life: Every asset has a fixed and predetermined life during which it contributes to the production of goods and services in the business. This is known as useful life of an asset.

Straight Line Method: Under the straight line method, the value of the asset left after deduction of the salvage value is depreciated by same amount throughout the life of the asset.

To Prepare: The journal entry on December 31, 2017 in the books of E Club.