Question

Splish Brothers Inc. purchased equipment for $18000 on December 1. It is estimated that annual depreciation on the computer will be $3600. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Answer 1

Answer:

The entries must be for recording the purchase of the asset:

Dr Fixed Asset $18,000

Cr    Cash or Bank Account $18,000

The entry shows the decrease and one asset and increase in the other asset. If the asset is increased then it must be debited (FIXED ASSET) and if it is decreased then it must be credited (CASH).

The entry required to require depreciation would be:

Dr Depreciation Expense $3600

Cr Accumulated Depreciation $3600

The depreciation is an expense and increase in expense is always debited whereas the accumulated depreciation account is contra asset account and is credit in nature and its increase must be credited.