Instructions:
Respond to at least 2 of your fellow classmates with a reply of at least 1 paragraph about their primary task response regarding items you found to be compelling and enlightening. To help you with your discussion, please consider the following questions:
What did you learn from your classmate’s posting?
What additional questions do you have after reading the posting?
What clarification do you need regarding the posting?
What differences or similarities do you see between your posting and other classmates’ postings?
How would this topic be of value to you in your life or career?
*You don’t have to answer all the questions. As long as it’s a paragraph response then it’s good. Also please split the responses, and write the response as if you are having a conversation with the person. Please do not combine the responses. Thanks*
Ex: Classmate 1 – Respond to in its entirety
then
Classmate 2 in its entirety
Post by Joseph Palmaffy:
Define and explain two common types of receivables.
Receivables are debts owed to a company that are expected to be paid and are considered in accounting terms as assets. “The basic accounts receivable relationship that exists between the business owner and the lender occurs when the business owner extends credit to the debtor to help the debtor finance existing operations. These types of loans increase the current assets of the company and are accounted for in the general ledger and in the accounts receivable account for the borrower.” (Lewis, 2015)
Trade receivables are generally good for up to a year whereas accounts receivables are good for up to two months
Why does a business depreciate?
I business depreciates because its assets lose value overtime. “Depreciation is the systematic reduction in the recorded cost of a fixed asset.” (Overview of Depreciation | Depreciation Accounting, 2015) Businesses use this to pay less taxes and manage their liquidity.
What are three methods of depreciation?
A – Straight line depreciation is
B – Declining balance depreciation is
C – Use-based Depreciation is where as items are used they are devalued for example if it is known that a tractor will last for 10,000 hours it can be depreciated by the hours that have been used.
Provide the formula for each of the three methods of depreciation along with an example and rationale for use.
A – The formula for Straight line depreciation is (Cost – Residual value) / Useful life. (Accounting Study, 2015) The items useful life is assessed in the beginning and then it depreciates over that time period.
B – The formula for Declining balance depreciation is Depreciation = Book value x Depreciation rate; Book value = Cost – Accumulated depreciation (Accounting Study, 2015) This is used when you have item such as cars where there is a value determined by a given standard.
C – The formula for Use-based depreciation is the initial cost of the item divided by the total hours of use – the hours used. For example ($1000/1000hours)X 100 = $100 of the initial value of the item has been used therefore it is only worth $900.
Example would be straight line depreciation, provide the formula, and why a business would chose to use it.
A company would chose a straight line depreciation method to keep things as simple as possible and also if it is difficult to determine the exact life of the item based on its hourly use or book value. If they believe the item will need to be replaced after five years it is easy to calculate the reduction formula.
References:
Accounting Study. (2015). Retrieved from Accounting Info: http://accountinginfo.com/study/dep/depreciation-01.htm
Lewis, J. (2015). Accounting Types for Accounts Receivable. Retrieved from Chron: http://smallbusiness.chron.com/accounting-types-accounts-receivable-33150.html
Overview of Depreciation | Depreciation Accounting. (2015). Retrieved from Accounting Tools: http://www.accountingtools.com/overview-of-depreciation
Post by Lisa Duquette:
Accounts Receivables
Define and explain two common types of receivables.
Notes receivable is similar to the basic accounts receivable. It does tend to differ in ways like the length of time a borrower has to repay the account. As to where the basic accounts receivable helps to increase the asset of the company.
Trade receivable is a lot like the other accounts receivables, this is asset to the company when the transaction is noted in the ledger the right way. This happen as a result of direct company sales.
Why does a business depreciate?
A business depreciates because the business chooses to do so. They do this by their asset, gauging their performance over a defined period of time. A business does this so they can accurately report their earnings and losses to the IRS.
What are three methods of depreciation?
Depreciation expense: is when you buy something and over time it loses its value and is not worth as much. A business is allowed to write off a part of the price of the expense.
Accelerated depreciation: is where a business owner is allowed to depreciate their assets earlier. Rules for this are often put in place by our elected officials. This is done to encourage business owners to use this money on equipment. Doing something like this helps spend lots of money.
Double-Declining Balance: this is like the accelerated method. This starts out high in the first few years and slowdown in the later years after that. You choose a percentage to depreciate by each year.
Provide the formula for each of the three methods of depreciation along with an example and rationale for use.
Depreciation expense: Business furniture is most often depreciated over seven years so if you purchase a $700 desk on January 1st of 2008 you may take $100 worth of depreciation in 2008 and then an additional $100 per year for the next six years. At the end of seven years you have taken the value of the asset to zero in this example. (www.sbscpagroup.com)
Accelerated depreciation: In year two, the value of the asset is $1,000,000 – $200,000 = $800,000. (www.investinganswer.com)
Double-Declining Balance: Depreciation rate for double declining balance method
= 20% x 200% = 20% x 2 = 40% per year. (www.accountinginfo.com)
Example would be straight line depreciation, provide the formula, and why a business would choose to use it. Businesses like to use this one for the reason that it is the simplest method. The example is:($5,000 purchase price – $200 approximate salvage value) ÷ 3 years estimated useful life. (www.beginnersinvest.about.com)
Reference
www.smallbusiness.cron.com
www.ehow.com
www.sbscpagroup.com
www.investinganswer.com
www.accountinginfo.com
www.beginnersinvest.about.com
