Question
Bluewater Ferries uses straight-line depreciation and records all equipment in a single Equipment account, with a matching "Accumulated Depreciation - Equipment" account. During 2025 it bought two assets, both paid in cash:
| Date | Asset | Cost | Useful Life | Residual Value |
|---|
| January 1 | Delivery van | $24,000 | 5 years | $4,000 |
| July 1 | Packaging machine | $9,000 | 4 years | $0 |
Required:
- Record the purchase of each asset on its purchase date.
- Record the depreciation adjusting entries at December 31, 2025 — one entry per asset. Remember the machine was owned for only half of the year.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Adjusting entries exist to move revenue and expense into the period they belong to, regardless of when cash moved. Every adjusting entry touches at least one income statement account and one balance sheet account — and never the cash account, because the cash has either already moved or has not moved yet.
Common mistakes
- Debiting or crediting Cash in an adjusting entry — a reliable sign the entry is wrong.
- Adjusting for the full amount of a prepayment rather than only the expired portion.
- Missing accrued items entirely because no document prompted them — accrued interest and accrued wages are the usual casualties.
Further readingThe 5 types of adjusting entry