BTN3-3 homework - Coursework Example

Question Depreciation is the reduction in the value of an asset used by a firm to generate income (Stittle, & Bob, 58). Therefore, depreciation is an expense and should debit the depreciation account that is in the income statement. Accumulated depreciation is the total depreciation an asset as accrued since it began to be used to generate income. The accumulated depreciation account that is the in the balance sheet is credited by the depreciation expense. Debt and credit of an account is a feature of a contra account.

In this case, the value of the equipment in the balance sheet will reduce by $ 123,000. As years progress, the value of the equipment will decline till the accumulated depreciation is equivalent to the cost of purchase if the asset does not have a salvage value. This being the accredited way of recording depreciation expenses and accumulated depreciation, I hereby support the method used by Boland. Question 2Smith’s method has its strength, but the weaknesses are severe. It can be noted from the statement that the depreciation was the first one because the accumulated depreciation was equals to depreciation expense.

For the first year, the method proposed by Smith is logical since it is easy to credit the amount directly in the balance sheet with regards to the asset depreciating. The weakness arises when the equipment has depreciated for several years, it will be difficult to have a plot on the accumulated depreciation, and thus, the value of the equipment will be overvalued or undervalued. Question 3 The situation Boland is facing an ethical one, because the method Smith is suggesting and what she is used to are both applicable to the situation.

As an accountant, there are guidelines such as General Accepted Accounting Principles (GAAP) that spells out how such transactions should be recorded. Therefore, if Boland violates those principles, the financial reporting of the firm’s status will not be accurate. It is unethical to violate those principles. Works CitedStittle, John, and Bob Wearing. Financial Accounting. Los Angeles: SAGE Publications, 2008. Print.