Hello!
For a few days I can't solve the problem that looks easy-peasy. I will be grateful for help on this one.
Problem: which items will be increased by depreciation entry, when a company has recorded X$ of depreciation on manufacturing equipment used to produce goods:
- accumulated depreciation
- work in process inventory
- current assets
- cost of goods sold
- pp&e
I have marked work in process inventory and accumulated depreciation first; that was wrong; after pondering for a while I have added cogs, but that's also wrong. Please, take a look at my reasoning.
The journal entry is:
Dr Work in process inventory (+A) X
Cr. Accumulated Depreciation (+XA) X
1) accumulated depreciation: yes, this account is increased when we record depreciation on manufacturing equipment, as well as a depreciation expense on pp&e; so my answer solid yes here;
2) work in process inventory: solid yes, as the I show in the journal entry; this is the equipment used to produce goods, so it is part of the cost;
3) current assets: no, because although we increase assets by debiting work in process, we immediately increase counter asset account, i.e. accumulated depreciation; so current assets do not increase;
4) cost of goods sold: well, I have not marked this one initially, because nothing's said about selling the goods; the company has merely recorded depreciation; but later I thought that maybe the problem implies that whenever the company plans to sell these goods, their cost will be higher, and marked cogs as yes.
5) pp&e: no, this account can't increase.
Please, help me to understand my mistake. Thank you very much!
For a few days I can't solve the problem that looks easy-peasy. I will be grateful for help on this one.
Problem: which items will be increased by depreciation entry, when a company has recorded X$ of depreciation on manufacturing equipment used to produce goods:
- accumulated depreciation
- work in process inventory
- current assets
- cost of goods sold
- pp&e
I have marked work in process inventory and accumulated depreciation first; that was wrong; after pondering for a while I have added cogs, but that's also wrong. Please, take a look at my reasoning.
The journal entry is:
Dr Work in process inventory (+A) X
Cr. Accumulated Depreciation (+XA) X
1) accumulated depreciation: yes, this account is increased when we record depreciation on manufacturing equipment, as well as a depreciation expense on pp&e; so my answer solid yes here;
2) work in process inventory: solid yes, as the I show in the journal entry; this is the equipment used to produce goods, so it is part of the cost;
3) current assets: no, because although we increase assets by debiting work in process, we immediately increase counter asset account, i.e. accumulated depreciation; so current assets do not increase;
4) cost of goods sold: well, I have not marked this one initially, because nothing's said about selling the goods; the company has merely recorded depreciation; but later I thought that maybe the problem implies that whenever the company plans to sell these goods, their cost will be higher, and marked cogs as yes.
5) pp&e: no, this account can't increase.
Please, help me to understand my mistake. Thank you very much!