Juan Foods purchases a computer system in 2015 for $20,000. Its expected useful life is 5 years. At the end of 2015, it has to record depreciation on the computer system of $2,000.
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Depreciation refers to the diminution in the value of a fixed asset because of its continuous usage and it is a noncash expense that is written down to the income statement each year until the estimated useful life of asset is completed or the asset is sold, whichever is earlier. The accumulated depreciation is reduced from the gross fixed assets in the balance sheet to determine the net fixed assets.
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