Unit 1 Discussion 2: Depreciation

In this unit, you are learning about the acquisition and depreciation of long-term assets. These are very important topics because these assets represent a business's largest investment of resources. Recording the correct cost for an asset can be difficult because there are many costs associated with the purchase or construction of tangible property, and there are many legal fees associated with the purchase of real property.

After assets have been acquired or constructed, they can be depreciated over a period of time. Depreciation is not meant to show the decline in the value of property. Depreciation refers to how the asset is used or charged over a period of time - its useful life. A company will record depreciation on the books in order to follow the matching principle. The matching principle occurs when expenses are matched to revenues. The revenue generated from the asset purchased is matched to depreciation expense.

Discussion Questions

For your initial post, image you own a business and discuss the following information:

• Identify and describe your business for this assignment (e.g. Clothing Store, Landscaping business, Delivery service, or Restaurant).
• Give an example of a long-term asset that the business owns.
• Classify the asset (i.e. building, equipment, furniture & fixtures, etc.)
• What depreciation method will you use to depreciate this asset? Explain Why.
• How does depreciation affect the income statement and balance sheet?
• Explain how depreciation might affect your decisions to purchase expensive equipment or real estate.

Reference

Wild, J.J., Shaw, K.W., & Chiappetta B. (2014). Principles of Financial Accounting (22nd ed.). New York, NY: McGraw-Hill Irwin