what to put where (depreciation ap1)

fishyfeet

Im distance learning and have had no probs up till now, i understand the depreciation and how to work out how much an item depreciates by etc, my problem is, when i write it into the journals, there is the machine account, depreciation, acc depreciation, , the plant register,
new vehicles, old vehicles, disposal account, three years depreciation and show relevent extracts from the financial statements, i had no idea where to start and had to work from the answer.

MarkT

Hi there fishyfeet.

The first part is to not worry about the Machine account as this is only affected when a machine is purchased or sold, it stays as a debit (asset) until disposed of.

There are two depreciation accounts - 1 for the income statement - Depreciation Expense (debit) and 1 for the statement of financial position - Accumulated Depreciation (credit)

The debit is simply because in the year, your machine depreciated by £xx and so, reduced the company profits for the year. This amount is then off-set by placing it in the Accumulated Depreciation account where it stays and waits until the next year when you add to it, this account is like a savings account where you will at the end of the machines natural life or disposal remove some of the amount to then place in the machinery at cost account and add any monies (if any) acquired when disposing of the asset. Any differences between the cost and money gained and depreciation are then added to the income statement as a loss or gain on disposal of asset.

Hope this is a bit clearer