24 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. Credit. 
$50 Reserve for depreciation on machinery and equipment. 
100 Loss, boiler explosion. 
Machineryrand-equipment | 250! 22 2a. 2-352 Seb G8 $150 
(For loss on machinery and equipment due to explosion.) 
200 Machinery and equipment. : 
Bank -aceouniaes2 5320S joe. Pie fea) ba 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, poder explesion=. 3.) ..5 s— 2bo sate aes ees $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, filing 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 (D1). 
Debit: Credit: 
1. With the amount of unexpired in- 1. At the close ofa 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 forin 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. 
