By: 309714
Unit title: Hospitality Accounting 1
Unit leader: Mr. Matthias Pfeiffer
Unit Code: 33HA9001
Abstract
This report gives an in depth analysis of what depreciation is and why is it used by various business firms. It also reflects on the different types of methods used to determine the depreciation and how it impacts on various financial statements/accounts like cash flow, profit and loss and assets.
Table of contents
Abstract
1. Introduction
2. What is Depreciation?
2.1 How do assets depreciate?
2.2 How is Depreciation calculated?
3. Why does a business firm use Depreciation?
4. Methodology of Depreciation
4.1 Straight Line Method
4.2 Double Declining Balance Method
5. Effects of Depreciation on financial …show more content…
This is called the matching principle, where revenues and expenses both appear in the income statement in the same reporting period, which gives the best view of how well a company has performed in a given accounting period. (What is the purpose of depreciation? - Questions & Answers – AccountingTools, 2016)
According to What is the purpose of depreciation? - Questions & Answers – AccountingTools (2016) ‘If we were not to utilize depreciation at all, then we would be forced to charge all assets to expense as soon as we buy them. This would result in immensely colossal losses in the months when this transaction occurs, followed by unwontedly high profitability in those periods when the corresponding amount of revenue is apperceived, with no offsetting expense. Thus, a company that does not utilize depreciation will have front-loaded expenses, and astronomically variable financial results.’
The regular journal entry to record depreciation is a debit to Depreciation Expense (which appears on the income statement) and a credit to accumulated depreciation (which appears as a contra account in the balance
Unit title: Hospitality Accounting 1
Unit leader: Mr. Matthias Pfeiffer
Unit Code: 33HA9001
Abstract
This report gives an in depth analysis of what depreciation is and why is it used by various business firms. It also reflects on the different types of methods used to determine the depreciation and how it impacts on various financial statements/accounts like cash flow, profit and loss and assets.
Table of contents
Abstract
1. Introduction
2. What is Depreciation?
2.1 How do assets depreciate?
2.2 How is Depreciation calculated?
3. Why does a business firm use Depreciation?
4. Methodology of Depreciation
4.1 Straight Line Method
4.2 Double Declining Balance Method
5. Effects of Depreciation on financial …show more content…
This is called the matching principle, where revenues and expenses both appear in the income statement in the same reporting period, which gives the best view of how well a company has performed in a given accounting period. (What is the purpose of depreciation? - Questions & Answers – AccountingTools, 2016)
According to What is the purpose of depreciation? - Questions & Answers – AccountingTools (2016) ‘If we were not to utilize depreciation at all, then we would be forced to charge all assets to expense as soon as we buy them. This would result in immensely colossal losses in the months when this transaction occurs, followed by unwontedly high profitability in those periods when the corresponding amount of revenue is apperceived, with no offsetting expense. Thus, a company that does not utilize depreciation will have front-loaded expenses, and astronomically variable financial results.’
The regular journal entry to record depreciation is a debit to Depreciation Expense (which appears on the income statement) and a credit to accumulated depreciation (which appears as a contra account in the balance