Accounting Essay Example

Summary of Presentation

According to Hilton (2004) every business is required to produce financial reports at the end of an accounting period. The financial statements are used for various purposes. Financial reports are used by various parties who may either be internal users or external users. Internal users of financial reports include the management and the employees of the firm. They need this information to determine the performance of the business and identify areas that need to be addressed (Horngren, & Harrison, 2007). External users of financial reports include the general members of the public, competitors and the Government. The Government, for instance, require this information for taxation purposes. A tax rate is subjected against the operating profit after interest has been deducted. Therefore, the income statement should be clear and provide all information necessary for taxation purposes.

Depreciation is an expense that is chargeable against the profit made by the business. This is because the asset that was used in the production of revenue has been declined in value. This is therefore, a cost that should be charged against the revenue for that period (Fess and Warren, 2004).

A business is a going concern and should not go down with the disposal of the asset when its useful life is over. Depreciation, therefore, is a rational way of providing for funds that should be used to replace the asset when it is depleted.

The various methods for accounting for depreciation help to depreciate each asset appropriately. Some assets depreciate faster than others. In this case, the sum of digits method of depreciation should be used (Greuning, 2005).

Question 2

General journal


Dr. accumulated depreciation account — vehicle

Cr. Vehicle account

Dr. accumulated depreciation -furn $ Equip

Cr. Office furniture & equipment

Dr. Accumulated depreciation account — Buildings

Cr. Buildings account


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Black, G., 2003. Students’ Guide To Accounting and Financial Reporting Standards. London: Financial Times Prentice Hall.

Brown, G.R. and Matysiak, G.A., 2007. Real Estate Investment: A Capital Market Approach. London: Financial Times.

Donald, E. et al., 2009. Intermediate Accounting. New Jersey: John Wiley and Sons.

Fess, E. and Warren, C., 2004. Accounting principles. Canada: Southwestern Company.

Greuning, H. V., 2005. International financial reporting standards: a practical guide. New York: Routledge.

Hilton, R. W., 2004. Managerial Accounting: Creating Value in a Dynamic Business Environment. New Delhi: McGraw-Hill Publisher.

Horngren, C. T., & Harrison, W. T., 2007. Accounting.7th ed. Upper Saddle River, NJ: Pearson Prentice Hall.

Weygandt, J. et al., 2009. Managerial Accounting: Tools for Business Decision Making. New York: John Wiley and Sons.