All right, good.
Questions on B?
Now I know we have C to go on to but I want to do something here on this one here, okay?
What
I want to do is, find my pen, here it is, I found it, you can quit looking.
I got it, okay?
I want to do a partial balance
sheet, a partial balance sheet and I want to show the truck less the accumulated depreciation.
What does that equal, cost less
accumulated depreciation?
-Book value.
So what are these amounts at end of year one?
At the end of year one, this is the entry we've made, do you see
where the truck is $44,000 then we subtract out the accumulated depreciation of $8,800,
correct?
And that equals, what does
that equal?
$35,200?
Agreed?
-I agree.
-Okay.
Now, let's say, what would those amounts equal at the end of year two?
Well, the truck would still, the cost was still
$44,000, correct?
But now our accumulated depreciation is how much?
-$36,400?
-Well, our accumulated depreciation, that's how much we depreciate every year, right?
So after two years we've depreciated
this amount twice, so $8,800 is $17,600.
-$17,600, yeah.
-Does that make sense?
So what is our new book value?
I believe it's $26,400, okay?
Somebody second that?
-Yes.
-Is that right?
-Yes.
-Okay?
All right.
Do you understand what I'm doing here?
So, now let's fast forward to at end of year five.
Now, this is at
the end of year five and five years is what we estimated it to last, right?
Okay.
So the cost would still be $44,000, correct?
What would the accumulated depreciation be?
$8,800 times five which is $44,000.
So what is the book value?
-Zero.
Now, this is a-- I'm doing this because do you think the market value of that truck is
zero at the end of year five?
-No.
-Would we just give it away if somebody offered us a dollar?
No.
This is why we use a contra asset in depreciation.
Now we did
not with supplies and prepaid insurance, right?
But with fixed assets, this is what, looking back at the document camera,
above the yellow line is what the readers will see.
If we would have made these AJE's and credited truck instead of the contra
asset of accumulated depreciation truck, here is what would be showing on our balance sheet.
Truck, zero.
Now, which do you
think gives the reader more information?
This or this?
This, right?
This says, "Hey we have a truck.
We paid $44,000 for it.
It's fully depreciated, so the book value is zero but we do have the truck.
We're not making any claim to the market value of
it but we do have the truck," okay?
Does that make sense?
That's why we use a contra asset for fixed assets and depreciation.
Now we don't do it for supplies because truly, if your supplies are zero, then truly, your
supplies are zero, right?
If you
have prepaid insurance and it's all been used up, it's truly zero but that truck is not
truly zero, we want to give them more
information.
By us just saying truck, zero, little confusing, isn't it?
You with me?