Accounting 3

1. Accounting 3 Chapter 21 Section 1

2. Accounting for Plant Assets and Depreciation • Current Assets - Cash and other assets expected to be exchanged for cash or consumed within a year (supplies, inventory, account receivables, etc.) • Plant Assets - Assets that will be used for a number of years in the operation of a business (computers, cash registers, display cabinets, furniture, etc.).

3. Plant Assets • Three types: Equipment, Buildings, and Land. • Typically businesses own the equipment they use. These are usually classified into accounts for each type of equipment, for example: Office Equipment and Store Equipment. • Not all businesses own the building(s) or land. If these are not owned, they are not considered plant assets.

4. Recording of Buying of Plant Assets • As with all asset accounts, any plant asset account has a normal debit balance with increases on the debit side. • Recording and posting of buying a plant asset is done the same as any current asset. • Example transaction and visual steps on next slide.

5. Cash Payments Journal Page ___ Ck No. Post Ref. GENERAL Date Account Title Accts Pay Debit Purch. Disc. Credit Cash Credit DEBIT CREDIT January 2. Paid cash for a display case, $1,250.00. Check No. 7. 1 Jan 2 Store Equipment 7 1 2 5 0 00 1 2 5 0 00

6. Property Tax • For tax purposes, state and federal governments define two kinds of property – real and personal. • Real Property – Land and anything attached to it. (Also called Real Estate Property) • Personal Property – All property not classified as real property (such as cars, boats, motorcycles, mobile homes, etc)

7. Property Tax • Assessed Value – The value of an asset (property not equipment) determined by tax authorities for the purpose of calculating taxes. • This value is usually based on the judgment of persons referred to as assessors. • The taxing governmental body determines a rate to use in calculating property taxes.

8. Property Tax • The tax rate times the assessed value of the property is what the business or individual owes to the government. • Example: • Assessed Value = $70,000.00 • Tax Rate = 1.2% • (AV)$70,000 x (TR) 1.2% = $840.00 Annual Property Tax

9. Paying Property Tax • Payment of property taxes is necessary if a firm is to continue in business. • Because it is a necessity, it is considered as an operating expense. • The account used to keep track of these expenses is Property Tax Expense. • Property Tax Expense has a normal debit balance. • Example transacation and visual steps on next slide.

10. Cash Payments Journal Page ___ Ck No. Post Ref. GENERAL Date Account Title Accts Pay Debit Purch. Disc. Credit Cash Credit DEBIT CREDIT February 1. Paid cash for property tax, $840.00. Check No. 187. 3 Feb 1 Property Tax Expense 187 8 4 0 00 8 4 0 00

11. Cash Payments Journal Page ___ Ck No. Post Ref. GENERAL Date Account Title Accts Pay Debit Purch. Disc. Credit Cash Credit DEBIT CREDIT Work Together p. 548 1 Jan 2 Office Equipment 130 1205 9 0 0 00 9 0 0 00 3 Store Equipment 132 1215 8 0 0 00 8 0 0 00 Feb 26 Property Tax Expense 167 6142 1 8 0 0 00 1 8 0 0 00 Apr 2 Store Equipment 193 1215 1 5 0 0 00 1 5 0 0 00 Assignment

12. General Ledger Account Account Acct No. Acct No. Post Ref Post Ref Date Date Item Item Debit Debit Credit Credit BALANCE BALANCE DEBIT DEBIT CREDIT CREDIT Office Equipment 1205 Jan 1 Balance 25 4 8 0 00 2 CP1 9 0 0 00 26 3 8 0 00 Store Equipment 1215 Jan 1 Balance 15 4 8 0 00 3 CP1 8 0 0 00 16 2 8 0 00 Apr 2 CP1 1 5 0 0 00 17 7 8 0 00

13. General Ledger Account Acct No. Post Ref Date Item Debit Credit BALANCE DEBIT CREDIT Property Tax Expense 6142 Feb 26 CP1 1 8 0 0 00 1 8 0 0 00

14. Assignment • Do Application 21-1 by hand. • Turn it into Mrs. Middleton. • Move on to Section 21-2.