91Ó°ÊÓ

Depreciation is a key component in accounting used to allocate the cost of tangible assets over their useful life. When we talk about journalizing depreciation, we refer to the process of recording the depreciation expense in the financial records.
This is done through a journal entry, which impacts two primary accounts: Depreciation Expense and Accumulated Depreciation.

Here's a quick overview of how it's done:

• **Depreciation Expense** is debited, as it represents an expense decreasing net income.
• **Accumulated Depreciation** is credited, as it represents a contra-asset account. This means it offsets the asset's value.

For example, if the total depreciation for all trucks at the end of the year is calculated as $33,620, the journal entry would look like this:
- **Debit:** Depreciation Expense $33,620
- **Credit:** Accumulated Depreciation—Trucks $33,620

This journal entry helps to ensure that the financial statements accurately reflect the depreciation, maintaining compliance with accounting principles and revealing the reduced book value of the assets.

Calculating the depreciation rate per mile is crucial for businesses that use vehicles extensively. Instead of a fixed annual depreciation, this method allocates cost based on usage, often a more accurate reflection of wear and tear.

To find this rate, you'll need:

• The initial cost of the vehicle.
• The estimated residual value, which is the vehicle's worth after its useful life.
• The total expected mileage over its useful lifetime.

The formula is:\[\text{Depreciation Rate per Mile} = \frac{\text{Cost} - \text{Residual Value}}{\text{Estimated Total Miles}}\]
For instance, for Truck 1, with a cost of \(50,000, a residual value of \)6,500, and an estimated life of 150,000 miles, the rate is calculated as:\[\frac{50,000 - 6,500}{150,000} = 0.29 \text{ per mile}\]
This rate helps allocate expenses accurately as it's multiplied by the actual miles driven during the period to determine the depreciation expense.

Accumulated Depreciation is an accounting method used to track the total depreciation of an asset since it was acquired. This account is cumulative, meaning it accumulates over the asset's life.

Here are some key points to understand:

• **Contra Asset:** It's classified as a contra-asset account because it reduces the value of the associated asset. For instance, the account Accumulated Depreciation—Trucks serves to decrease the recorded value of trucks.
• **Recording Movement:** Each period, a portion of the asset's cost is moved to this account to reflect usage, degradation, or aging.
• **Impact on Book Value:** As depreciation is recorded, the asset’s book value is decreased, which is its original cost minus accumulated depreciation.

By the end of the accounting period, the total depreciation calculated (such as $33,620 for the trucks in the exercise) increases this account, reflecting the ongoing decrease in the asset's utility and the consequent adjustment in its financial statement representation.