Depreciation Basics

Question 1

define depreciation

Answer 1

the process of reducing the book value of a fixed tangible asset due to:
- use
- wear & tear
- passage of time
- obsolescence

Question 2

what is a fixed asset

Answer 2

an asset that is expected to be used continually for more than a year, not intended for sale

Question 3

what is a tangible asset

Answer 3

an asset that can be physically felt

Question 4

what is accrual accounting

Answer 4

income is recognised when earned, expenses recognised when incurred

Question 5

what type of journal entries are depreciation journal entries

Answer 5

adjusting journal entries

Question 6

what are adjusting entries

Answer 6

journal entries posted at the end of the accounting period to bring books in alignment with the accrual method of accounting

Question 7

what is book value

Answer 7

an assets value on the business’s accounts

Question 8

define capitalization

Answer 8

the process of recording a cost as a fixed asset in the balance sheet rather than an expense in the income statement

Question 9

what are the various types of depreciation

Answer 9

• straight line depreciation
• double declining balance depreciation
• sum of the year’s digits depreciation
• units of production depreciation

Question 10

what type of depreciation is straight line depreciation method

Answer 10

fixed

Question 11

what type of depreciation is double declining balance, sum of the year’s digits and units of production?

Answer 11

variable

Question 12

what information is needed when calculating depreciation?

Answer 12

• asset description
• depreciation method
• asset cost
• residual value
• useful life
• depreciation rate
• depreciation cost

Question 13

what is a journal entry

Answer 13

a record of a financial transaction