purchase of a machine for $2000 was expensed. The machine has a four year life , no residual value , and straight line depreciation is used how to write journal entry?
To write a journal entry for the purchase of a machine that has a four-year life, no residual value, and straight-line depreciation, you would follow these steps:
1. Identify the accounts affected: In this case, you need to consider the following accounts:
- Equipment (Asset account): Represents the machine that was purchased.
- Accumulated Depreciation (Contra-asset account): Tracks the accumulated depreciation expense on the machine.
- Cash or Accounts Payable (Asset or Liability account): Represents the method of payment for the machine.
2. Determine the amounts: In this scenario, you stated that the machine was purchased for $2000 with no residual value. Therefore, the initial cost of the machine will be the same as the purchase price - $2000. Since straight-line depreciation is used, you will divide the initial cost by the useful life of the machine (four years) to determine the annual depreciation expense. In this case, it will be $2000 divided by 4 = $500 per year.
3. Write the journal entry:
- Debit the Equipment account: Reflect the initial cost of the machine.
- Credit either the Cash account (if paid in cash) or the Accounts Payable account (if purchased on credit): Represent the decrease in assets or increase in liabilities due to the payment made for the machine.
Here is an example of the journal entry:
Date | Account | Debit | Credit
-----------|--------------------------|-----------|----------
[Date] | Equipment | $2000 |
| Cash/Accounts Payable | | $2000
Remember to adjust the Accumulated Depreciation and Depreciation Expense accounts annually to reflect the depreciation expense ($500) for each subsequent year.