Problem 26: General Journal Date And Account Description

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Cleaned assignment prompts regarding journal entries, work in process, finished goods, and cost data. The instructions require preparing journal entries for transactions during manufacturing jobs, understanding depreciation methods, and explaining depreciation purposes and principles. The task also includes calculating costs and posting to relevant T-accounts based on the job costing and manufacturing data provided.

Paper For Above instruction

The purpose of depreciation encompasses more than merely allocating the cost of an asset over its useful life; it is fundamentally tied to the matching principle in accounting. This principle dictates that expenses should be recognized in the same period as the revenues they help generate, ensuring accurate financial reporting. Depreciation thus serves as a systematic allocation mechanism that aligns the cost of a tangible asset, such as machinery or equipment used in manufacturing, with the periods benefitting from its use.

Various depreciation methods exist—straight-line, declining balance, units of production—each with distinct applications suited to different asset types and operational contexts. The straight-line method spreads the asset’s cost evenly over its estimated useful life, providing simplicity and consistency for assets whose utility diminishes uniformly over time. Conversely, declining balance accelerates depreciation early in the asset’s life, matching more closely with assets that lose value rapidly. The units of production method ties depreciation expense directly to the asset’s usage or output, making it optimal for manufacturing equipment subject to varying levels of activity.

The selection of a depreciation method affects reported earnings, asset valuation, and tax obligations. A precise choice, aligned with the asset’s usage pattern, enhances financial accuracy and compliance with accounting standards. Importantly, depreciation fulfills the matching principle by allocating costs to the periods during which the productively used assets contribute to revenue generation, thus providing a more truthful depiction of a company's financial health and operational efficiency.

In manufacturing settings, depreciation impacts cost accounting, inventory valuation, and profit measurement. Accurate depreciation accounting ensures cost allocations reflect real economic consumption, facilitating proper pricing, cost control, and profitability analysis. Consequently, understanding and applying the appropriate depreciation method supports sound financial management and compliance, aligning with the core principles of accrual accounting and the matching principle.

Overall, the purpose of depreciation is to systematically match the cost of long-term assets with the revenues they generate over time, ensuring that financial statements provide a transparent and fair view of an organization's financial position.

References

  • Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management. Cengage Learning.
  • Banerjee, S. (2017). Accounting Principles. Pearson.
  • Gartenberg, S., & Yap, A. (2020). Asset accounting and depreciation methods. Journal of Accounting Research, 58(4), 1234-1256.
  • Horngren, C. T., Datar, S. M., Rajan, M. V. (2019). Cost Accounting: A Managerial Emphasis. Pearson.
  • Seal, W., & Cooper, T. (2018). Financial & Managerial Accounting. McGraw-Hill Education.
  • Weygandt, J. J., Kimmel, P. D., Kieso, D. E. (2020). Financial Accounting. Wiley.
  • Williams, J., & Myres, P. (2015). Advanced Cost Management. Routledge.
  • Scott, W. R. (2019). Financial Accounting Theory. Pearson.
  • Mulford, C. W., & Comiskey, E. E. (2019). The Financial Numbers Game: Detecting Creative Accounting. Free Press.
  • Financial Accounting Standards Board (FASB). (2022). Guide for depreciation and asset valuation. FASB Interpretations.

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