segmentation
Depreciation:- accumulated depreciation is an asset, so it will increase with a debit.
Why adjusting entries are prepared give some reasons?
Answer:
Adjusting entries have to be made because a company's assets, expenses, and liabilities never stay the same from one accounting period to another. I will try to give you at least two examples of why adjusting entries must be made.
Example 1.
A customer purchases items on account for the amount of $500. When the sale is first made the company records this transaction in sales and accounts receivable. Let's just say it's the end of the month and the customer pays $250 on the amount she owes. The company must then make the adjusting entries to show that not only did they receive the money, but to show that the customer paid. An adjusting entry for the $250 will be made to CASH and the appropriate Accounts Receivable.
If the company did not make this adjusting entry, then the books would show them as not having collected any money from the customer and not only would the customers account be incorrect, the Cash balance for the company would be off.
Example 2.
A company pays for 12 months insurance. Each month part of what they paid expires, they have to make adjusting entries to this as each month of insurance expires to show that they have used that amount. Say the company pays $480 a year, each month $40 of that would expire (or be used up), the company must make adjusting entries to show that this has occurred or their Prepaid insurance account and expenses will not reflect what the company has actually done.
Does liability decrease when company receives cash payment?
No, just because company receives cash does not mean that the liabilities will go down. Companies receive cash for merchandise sold, services rendered, money owed to the company from customers, investments, etc. These things will increase assets and either Revenue or Owners Equity (Stockholders equity) but they will not
Why adjusting entries are prepared give some reasons?
Answer:
Adjusting entries have to be made because a company's assets, expenses, and liabilities never stay the same from one accounting period to another. I will try to give you at least two examples of why adjusting entries must be made.
Example 1.
A customer purchases items on account for the amount of $500. When the sale is first made the company records this transaction in sales and accounts receivable. Let's just say it's the end of the month and the customer pays $250 on the amount she owes. The company must then make the adjusting entries to show that not only did they receive the money, but to show that the customer paid. An adjusting entry for the $250 will be made to CASH and the appropriate Accounts Receivable.
If the company did not make this adjusting entry, then the books would show them as not having collected any money from the customer and not only would the customers account be incorrect, the Cash balance for the company would be off.
Example 2.
A company pays for 12 months insurance. Each month part of what they paid expires, they have to make adjusting entries to this as each month of insurance expires to show that they have used that amount. Say the company pays $480 a year, each month $40 of that would expire (or be used up), the company must make adjusting entries to show that this has occurred or their Prepaid insurance account and expenses will not reflect what the company has actually done.
Does liability decrease when company receives cash payment?
No, just because company receives cash does not mean that the liabilities will go down. Companies receive cash for merchandise sold, services rendered, money owed to the company from customers, investments, etc. These things will increase assets and either Revenue or Owners Equity (Stockholders equity) but they will not