Question

Explain the following concept:

a. Depreciation

b.Interest Expense

c.Prepaid Expenses

d.Uncollected revenue

Answer 1

A. Depreciation is a non cash expense which is shown on the income statement as expense. Depreciation is charged on the depreciable fixed assets. It is a reduction in the value of an asset over time, due in particular to wear and tear. There are many methods like straight line method, double declining balance method etc.

B. Interest Expense is also an expense which is charged on the income statement. It relates to the cost of borrowing money. It is the price that the lender charges a borrower for the use of lenders money.

C. Prepaid expenses is a type of asset account which is shown on the asset side of the balance sheet. It results from a business making advanced payments for goods or services to be received in the future. For example, ABC Company pay $ 5,000 as 2 year insurance for the building. Here, the insurance is first treated as prepaid assets and when the insurance period covers, then it is treated as expense.

D. Uncollected revenue are those revenue which are earned during the period but has not been received yet. For example, ABC company performed services to the customers on account for $ 10,000. Here, the service is performed but the amount is not received which is said to be uncollected revenue.

SUMMARY:

All requirements have been provided.