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BULLETIN 985, U. S. DEPARTMENT OF AGRICULTURE. 



Example: A boiler costing $150 was completely destroyed by an explosion. At 

 the time the account "Reserve for depreciation on machinery and equipment" 

 shows a credit balance of $100. It was necessary to pay $200 for a similar boiler. The 

 following journal entries should be made: 



Debit 



$50 



100 



200 



Credit. 

 Reserve for depreciation on machinery and equipment. 

 Loss, boiler explosion. 



Machinery and equipment $150 



(For loss on machinery and equipment due to explosion.) 

 Machinery and equipment. 



Bank account 200 



(For purchase of new boiler.) 



In the above entries it should be carefully noted that the full amount set aside as a 

 "Reserve for depreciation on machinery and equipment" has not been entirely 

 exhausted by this loss, inasmuch as this fund is set aside to cover depreciation on all 

 the machinery and equipment, and only the relative proportion applying to the 

 boiler can be charged to the reserve account. 



The account "Loss, boiler explosion" should be periodically reduced by the follow- 

 ing entry: 



Debit. Credit. 



$10 Expense, boiler explosion. 



Loss, boiler explosion $10 



(For periodical charge to amortize loss due to explosion.) 



The acccunt "Expense, boiler explosion" should be carried to Profit and loss 

 account at the close of the fiscal year. 



Office Furniture and Equipment (B4). 



Debit-. 



Credit: 



1. With the original cost of office furni- 



1. With the cost of any item sold, dis- 



ture and equipment as shown by 



carded, or destroyed. (See credit 



the balance sheet at the time of 



under Machinery and equipment. ) 



opening the books. 





2. With the cost of additional equip- 





ment purchased, including trans- 





portation, installation, etc. 





This account should include such articles as desks, fifing cases, adding machines, 

 typewriters, ledger, journal binders, etc. In other words, those articles which should 

 last for an indefinite period of time. 



D. ACCOUNTS PAID IN ADVANCE. 

 Prepaid Insurance (Dl). 



Debit: 



Credit: 



1. With the amount of unexpired in- 



] . At the close of a fiscal period with the 



surance premiums as shown by the 



insurance premiums expired dur- 



balance sheet at the time of open- 



the period. (Debit Insurance ex- 



ing the books. 



pense.) 



2. With insurance premiums paid. 



2. With refunds on canceled policies. 



(Credit Bank account.) 





The debit balance of this account is an asset and should be shown on the balance 

 sheet. 



Usually policies run for a year or more and are paid for in advance. This payment 

 is charged to the "Prepaid insurance' ' account and represents an asset value. This 

 amount is reduced periodically by a charge to "Insurance expense," the credit 

 being carried to the "Prepaid insurance" account. 



