This is very helpful. I have a couple of Accounting Books I need to read and having short videos to explain specific concepts helps to solidify my understanding. Thank you for putting yourself out there. The educational content you provide completes the task. Thanks again.
Thanks for your videos! Sooo… Equipment Depreciation, that’s a tricky one. So I assume Depreciation Expense is an Expense, which explains the JE on the Debit side of the Equation. Is Accumulated Depreciation considered a Liability? So that’s why it’s entered on the Credit side? If Depreciation is an Expense, then why isn’t Accumulating Depreciation also considered an Expense? Which would also act like a Debit on the left side of the T Account for JE purposes? Thanks.
Hi, that is a great question. I will try to explain it as clearly as possible. I see how the name of the account "accumulated depreciation" can be misleading. The balance is in fact the accumulation of expenses taken over time. Specifically, depreciation expense associated with the usage of the equipment. You are right to say, that the balance is made of the depreciation expense, however, the account is not an expense account. The debit goes to the expense account (depreciation expense) which then is listed in the income statement, the credit goes to the accumulated depreciation account, which is actually a balance sheet account. The correct name for this type of account is a "contra asset account". If you get your asset (equipment account), which has a natural debit balance, and net it with the contra asset account (accumulated depreciation), you wil get the net book value of the asset after taking into account all the depreciation expense recognized over the assets life. What you are doing in essence is spreading the cost of the asset over time. But, instead of crediting the equipment account directly, we use a contra asset account (accumulated depreciation). I hope this helps. Let me know if you still have any questions. And thank you for reaching out, I will eventually have several videos on the various depreciation methods. Thanks!
Thanks for taking the time to explain this. I’m new at this, so I’m trying to apply the D-E-A-L-E-R method to balance my JE’s. What comes to mind is the creation of Accounts, what to name them, and how they interact with one another, so as to create the Balancing effect on the Balance Sheet,.. and not violate any accounting principles in the process. Thanks again.
Hello, the description for a journal entry line item is used to document the business purpose for recording the journal entry. It is helpful in order to establish a clear audit trail and to easily identify transactions when looking at an account transaction detail. Imagine if you download a report of debits and credits to a specific account, without descriptions, you would need to go back and find the source/or support for the transaction you recorded. Hope this answers your question.
This is very helpful. I have a couple of Accounting Books I need to read and having short videos to explain specific concepts helps to solidify my understanding. Thank you for putting yourself out there. The educational content you provide completes the task. Thanks again.
Glad it was helpful! thank you for the feedback
👏🏻👏🏻👏🏻
Make more videos! Make one on deferred Tax asset and Deferred tax liability, CIT and VAT
Great topics. Yes, will add it to my list of future videos. Thank you for your comment
Thanks for your videos! Sooo… Equipment Depreciation, that’s a tricky one. So I assume Depreciation Expense is an Expense, which explains the JE on the Debit side of the Equation. Is Accumulated Depreciation considered a Liability? So that’s why it’s entered on the Credit side? If Depreciation is an Expense, then why isn’t Accumulating Depreciation also considered an Expense? Which would also act like a Debit on the left side of the T Account for JE purposes? Thanks.
Hi, that is a great question. I will try to explain it as clearly as possible. I see how the name of the account "accumulated depreciation" can be misleading. The balance is in fact the accumulation of expenses taken over time. Specifically, depreciation expense associated with the usage of the equipment. You are right to say, that the balance is made of the depreciation expense, however, the account is not an expense account. The debit goes to the expense account (depreciation expense) which then is listed in the income statement, the credit goes to the accumulated depreciation account, which is actually a balance sheet account. The correct name for this type of account is a "contra asset account". If you get your asset (equipment account), which has a natural debit balance, and net it with the contra asset account (accumulated depreciation), you wil get the net book value of the asset after taking into account all the depreciation expense recognized over the assets life. What you are doing in essence is spreading the cost of the asset over time. But, instead of crediting the equipment account directly, we use a contra asset account (accumulated depreciation). I hope this helps. Let me know if you still have any questions. And thank you for reaching out, I will eventually have several videos on the various depreciation methods. Thanks!
Thanks for taking the time to explain this. I’m new at this, so I’m trying to apply the D-E-A-L-E-R method to balance my JE’s. What comes to mind is the creation of Accounts, what to name them, and how they interact with one another, so as to create the Balancing effect on the Balance Sheet,.. and not violate any accounting principles in the process. Thanks again.
Description and particular is same ?
Hello, the description for a journal entry line item is used to document the business purpose for recording the journal entry. It is helpful in order to establish a clear audit trail and to easily identify transactions when looking at an account transaction detail. Imagine if you download a report of debits and credits to a specific account, without descriptions, you would need to go back and find the source/or support for the transaction you recorded. Hope this answers your question.