Chapter 10: DEPRECIATION Definition: Depreciation is the allocation of the depreciable amount over its estimated useful life.

Causes of Depreciation: 1. Wear and tear 2. Obsolescence 3. Physical factors 4. Defluxion of time

Determination cost of non-current asset: Cost = Purchase Price + Capital expenditures Transportation cost Insurance on purchase of asset the

Taxes on the purchase of asset Installation costs Plate no. Painting of the business name, logo and address

Methods of Depreciation
1. Straight Line method (SLM) Formula:
Cost scrap value Useful life

2. Reducing Balance method (RBM) Formula:

% x (Cost Accum. Depreciation)

OR; % x [Cost scrap value (if any)] Journal Entries: Dr Depreciation xxxx Cr Accumulated Depreciation xxxx

Presentation in Financial Statement: Income Statement (extract) Expenses Depreciation xxxx

Balance Sheet (extract) NCA Machinery Cost xx Accum.depn (xx) Net book value xxxx

Chapter 9: Accounting For Accounts Receivable

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BAD DEBT Uncollectible amount of debt from ac receivable. It must be deducted from the ac receivable. Considered as an expense to the business and will be charged to the income statement. Journal Entries: Dr Bad debt xxx Cr Ac receivable xxx IS (+) expenses (-) Ac receivable

BAD DEBT RECOVERED When payments are received by the ac receivables whose debt has been written off as bad. It is considered as revenue to the business. Journal Entries: 1. To record the recovery of bad debt Dr Ac receivable xxx Cr Bad debt recovered (+) Ac receivable xxx IS (+) Revenue

2. To record the payment made by ac receivable Dr Cash/Bank xxx Cr Ac receivable (+) Cash/Bank xxx (-) Ac receivable

DOUBTFUL DEBT & ALLOWANCE FOR DOUBTFUL DEBT

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 The estimation amount of debt that probably not collected from ac receivable. Because there are possibilities that a few ac receivable might not be able to settle their debt. Therefore, certain amounts need to be reduced from the existing ac receivable. In the first accounting period, doubtful debt will be recorded in full. In the subsequent accounting periods, the increase or decrease in the estimation will be recorded. Formula: Allowance for Doubtful Debt = % x (Ac receivable Bad debt) Journal Entries: 1. 1st year recognition Dr Doubtful Debt xx IS (exp) Cr Allowance for Doubtful Debt xx 2. Increase in AFDD Dr Doubtful Debt xx IS (exp) Cr Allowance for Doubtful Debt xx 3. Decrease in AFDD Dr Allowance for Doubtful Debt xx Cr Doubtful Debt xx IS (Other Revenue) **Current year AFDD will be transferred to SoFP/B.sheet by reducing the amount of Ac receivable.

DISCOUNT ALLOWABLE & ALLOWANCE FOR DISCOUNT ALLOWABLE The estimation amount of discount that may be allowed to ac receivable who may pay within the discount period. In the first accounting period, discount allowable will be recorded in full. In the subsequent accounting periods, the increase or decrease in the estimation will be recorded. Formula: Allowance for Discount Allowable = % x (Ac receivable Bad debt - AFDD) Journal Entries: 1. 1st year recognition Dr Discount Allowable xx IS (exp) Cr Allowance for Discount Allowable xx 2. Increase in AFDA Dr Discount Allowable xx IS (exp) Cr Allowance for Discount Allowable xx 3. Decrease in AFDA Dr Allowance for Discount Allowable xx Cr Discount Allowable xx IS (Other Revenue) **Current year AFDA will be transferred to SoFP/B.sheet by reducing the amount of Ac receivable. Presentation in Financial Statement Income Statement (extract) Other revenue Bad debt recovered Decrease in AFDD/AFDA Expenses Bad debt Increase in AFDD/AFDA
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Balance Sheet (extract) Current Assets Ac receivable (-) Bad debt (-) AFDD (-) AFDA xx (xx) (xx) (xx)

Chapter 8: ACCRUALS AND PREPAYMENTS Prepaid Expenses Prepaid Revenue Known as expense paid in Customers make payment advance in advance to a company for goods or services yet to be provided. Treated as CA (-) IS Dr Prepaid expense Cr Expense Treated as CL (-) IS Dr Revenue Cr Prepaid revenue Accrued Expenses Expenses incurred by a company but yet to be paid and not recorded at all. Treated as CL (+) IS Dr Expense Cr Accrued Expense Accrued Revenue Revenues earned from services that have been performed but neither billed nor collected or recorded. Treated as CA (+) IS Dr Accrued revenue Cr Revenue