On March 31 a post closing trial balance was completed On April 4, the business purchased a new truck on account. The residual value is $2400, and the estimated useful life is 5 years. How do I enter this information into a general journal? Do I even need to calculate the depreciation at the beginning of the month?
general journal
Truck 2400
Account payable 2400
And about the depreciation, it should be calculated at the end of the month not at the beginning of the month.
To enter this information into a general journal, you need to follow these steps:
1. Date: Write the date of the entry, which in this case is April 4.
2. Account titles: Identify the relevant accounts that are affected by this transaction. In this case, you would have:
- "Truck" or "Fixed Assets" account: This account represents the purchase of the new truck.
- "Accounts Payable" or "Creditors" account: This account represents the amount owed for the truck purchase.
3. Debits and Credits: Decide whether each account is being debited or credited.
- "Truck" or "Fixed Assets" account: Since the truck is increasing in value, you would debit this account for the cost of the truck.
- "Accounts Payable" or "Creditors" account: Since the truck was purchased on account, you would credit this account for the amount owed for the truck.
4. Amounts: Enter the corresponding amounts for each account.
- "Truck" or "Fixed Assets" account: Enter the cost of the truck, which was not specified in the question.
- "Accounts Payable" or "Creditors" account: Enter the amount owed for the truck, which was not specified in the question.
Now, regarding the depreciation calculation at the beginning of the month, you won't need to calculate it for this specific journal entry. Depreciation is usually calculated and recorded periodically (e.g., monthly, annually). In this case, since the purchase and entry are happening in the same month (April), there won't be any depreciation to record for this specific transaction.
However, to calculate depreciation going forward, you would need to use the formula: (Cost of Asset - Residual Value) / Useful Life. In this case, it would be (Cost of the truck - $2400) / 5 years. This calculation should be done at the end of each period to record the depreciation expense.