Example(2) SuppliesTarget purchases supplies costing $5,000When supplies are purchased5,000Dr. Supplies5,000Cr. CashBy the end of the month, a count of the inventoryshows that $2,500 of the supplies has been used upAt the end of the month2,500Dr.Supplies Expense112,500Cr.Supplies
11 Example(2) Supplies ⚫ Target purchases supplies costing $5,000. When supplies are purchased ⚫ By the end of the month, a count of the inventory shows that $2,500 of the supplies has been used up. Dr. Supplies 5,000 Cr. Cash 5,000 Dr. Supplies Expense 2,500 Cr. Supplies 2,500 At the end of the month
Example(3) DepreciationDepreciation is a special kind ofprepayment.Itmeans the wear and tear on fixed assets thathavelong livesand will serveforyears inacompany, such as buildings, equipment, andmotor vehicles.The period of service is called the useful life orservice life of the asset.Depreciation is the process of allocating thecost of an asset to expense over its useful lifeAn account called Accumulated Depreciationis set up, which is a deduction of the assetsaccount it offsets12
12 Example(3) Depreciation ⚫ Depreciation is a special kind of prepayment. It means the wear and tear on fixed assets that have long lives and will serve for years in a company, such as buildings, equipment, and motor vehicles. ⚫ The period of service is called the useful life or service life of the asset. ⚫ Depreciation is the process of allocating the cost of an asset to expense over its useful life. ⚫ An account called Accumulated Depreciation is set up, which is a deduction of the assets account it offsets