a. What is depreciation? What is the difference between straight line and reducing balance method of depreciation? How can Murah Travel determine which depreciation method to use?
(Explain in detail)
Depreciation is an expense, it is the process of what benefit that the business can get from the non-current assets they own from its original cost that is spread throughout the business over the years. Depreciation occurs due to wear and tear from continuous use, physical weather or the non-current assets are outdated. In this case, depreciation needs to be recognized. Depreciation is an expense, so it is needed to be charged into the profit and loss account annually. The net profit of the business is also reduced due to the depreciation…show more content… The longer the time of the account receivable, the more the debts that are not going to be paid. Aging schedule sorts the account receivables that has been outstanding for a long period of time. The longer the time the account receivables are outstanding, the higher the allowance of doubtful debts we can estimate and obtain. Murah Travel can come up with an estimate percentage of uncollectible debts based on research of the business’s clients on their personal information or their financial status, past experience like there were some clients that didn’t not pay to the business before and they also may not pay now and some industry data. Murah Travel can either use the percent of sales method or the aging of accounts receivable method to estimate and obtain the percentage of uncollectible debts. The difference between the percent of sales and aging of account receivables for recognizing doubtful debts is that the percent of sales method is based on the precondition that the amount of bad debt is based on some measure of sales, such as total sales or credit sales while the aging of accounts receivables looks on the age of the receivables, the longer the time of the account receivables, the higher the allowance of doubtful debts obtained. This method based on the length of time each of the receivables that have been broken down which has been outstanding and applies a higher proportion to older