1. EQUIPMENT
TANGIBLE ITEMS USED IN DAY TO DAY OPERATIONS THAT ARE EXPECTED TO LAST MORE THAN ONE YEAR

2. EQUIPMENT
EQUIPMENT IS PRESENTED ON THE BALANCE SHEET AT HISTORICAL COST (COST TO ACQUIRE)

3. JOURNAL ENTRIES FOR EQUIPMENT
THERE ARE THREE JOURNAL ENTRIES FOR EQUIPMENT
1. ACQUIRE
2. ADJUST
3. DISPOSE

4. JOURNAL ENTRY TO ACQUIRE EQUIPMENT
EQUIPMENT XXX
CASH XXX
DEBIT EQUIPMENT FOR ALL COSTS TO ACUIRE AND PUT IN OPERATING CONDITION, INCLUDING, BUT NOT LIMITED TO, PURCHASE PRICE PLUS FREIGHT IN PLUS SET UP COSTS PLUS INTEREST ON LOANS DURING SETUP

5. THREE WAYS TO PAY FOR EQUIPMENT
EQUIPMENT XXX
CASH XXX
EQUIPMENT XXX
NOTES PAYABLE XXX
COMMON STOCK XXX

6. JOURNAL ENTRY TO ADJUST EQUIPMENT AT YEAR END
DEPRECIATION EXPENSE XXX
ACUMULATED DEPRECIATION XXX
THIS JOURNAL ENTRY IS DUE TO THE GAAP MATCHING, WHICH INSTRUCTS THAT COSTS SHOULD BE PLACE ON THE INCOME STATEMENT AS CONSUMED. THE TAXI WILL LAST SEVERAL YEARS, THEREFORE ITS COST SHOULD BE ON SEVERAL INCOME STATEMENTS

7. DEPRECIATION EXPENSE
SYSTEMATIC AND RATIONAL ALLOCATION METHOD OF SPREADING THE COST OF EQUIPMENT AS AN EXPENSE OVER ITS USEFUL LIFE
THE IRS HAS GUIDELINES FOR THE ESTIMATED LIFE OF DIFFERENT TYPES OF EQUIPMENT

8. DEPRECIATION EXPENSE - HOW CALCULATED?
STRAIGHT LINE
DOUBLE DECLINING
UNITS OF OUTPUT
SUM OF YEARS
WE ARE ONLY GOING TO LEARN STRAIGHT LINE METHOD IN THIS CLASS

9. STRAIGHT LINE FORMULA COST - COST TO ACQUIRE
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = 𝐶𝑜𝑠𝑡−𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒 × 𝑀𝑜𝑛𝑡ℎ𝑠 𝑖𝑛 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 12
COST - COST TO ACQUIRE
SALVAGE - ESTIMATED SELLING PRICE
USEFUL LIFE - ESTIMATED DURATION OF USE

10. DEPRECIATION SCHEDULE
DATE COST METHOD DEP EXP ACC DEP BV
ACCUMULATED DEPRECIATION = SUM OF ALL DEPRECIATION EXPENSE TAKEN
BV = BOOK VALUE

11. JOURNAL ENTRY TO DISPOSE OF EQUIPMENT
DEPRECIATION EXPENSE XXX
ACUMULATED DEPRECIATION XXX
CASH XXX
ACCUMULATED DEPREC XXX
LOSS ON SALE XXX
EQUIPMENT XXX

12. TO DISPOSE OF EQUIPMENT
FIRST BRING DEP EXP UP TO DATE OF DISPOSAL
DEBIT CASH FOR AMOUNT RECEIVED
CLEAN OUT ACCUMULATED DEPRECIATION TO ZERO
CLEAN OUT EQUIPMENT TO ZERO
LOSS (OR GAIN) IS A PLUG FIGURE

13. TWO FORMULAS BOOK VALUE = COST – ACCUMULATED DEP
LOSS OR GAIN ON DISPOSAL = SELLING PRICE – BOOK VALUE

14. EQUIPMENT T ACCOUNT THE EQUIPMENT T ACCOUNT HAS FOUR CIRCLES
OPENING BALANCE
ADDITIONS TO EQUIPMENT
REMOVALS OF EQUIPMENT
ENDING BALANCE

15. ACC DEP T ACCOUNT ACCUMULATED DEPRECIATION T ACCOUNT HAS FOUR CIRCLES
OPENING BALANCE
PLUS DEPRECIATION EXPENSE
LESS EQUIPMENT DISPOSED OF
ENDING BALANCE

16. EQUIPMENT TOPICS NOT COVERED IN THIS PRESENTATION
OTHER METHODS OF CALCULATING DEP EXP
DISPOSING OF EQUIPMENT BY TRADING IT IN FOR OTHER ITEMS
COMPOSITE DEPRECIATION FOR GROUPS OF EQUIPMENT