ACCOUNTING FOR RECEIVABLES参考.ppt

Natural resources abound. We have accounting issues with oil, coal, timber, gold, gravel, and a wide variety of other natural resources. In general, natural resources can be thought of as anything extracted from our natural environment. As accountants, we report natural resources at their cost less accumulated depletion. The depletion we will study in this text is very similar to units-of-production depreciation. The cost of any natural resource must include all exploration and development costs as well as extraction costs. A portion of these total costs will be charged to income each period through the depletion expense account. Let’s see how this works. We begin the process of calculating depletion expense by determining the depletion expense per unit of natural resource. The numerator of the equation contains the resource cost less any estimated salvage value. The denominator of the equation is our estimated total capacity of the natural resource we expect to extract. For our example, the cost of the mineral deposits are $500,000, and the company expects to extract 250,000 tons of ore. There will be no salvage value after all the ore is extracted. The first step is to calculate the cost per ton extracted. In our example, the cost is $2 per ton. The next step it to calculate the depletion expense. Given that 85,000 tons of ore was extracted this period at a cost of $2 per ton, the depletion expense is $170,000. If the company extracts and sells 85,000 during the year, depletion expense will be $170,000 (85,000 tons times $2 per ton). The journal entry to record depletion is to debit Depletion Expense – Mineral Deposit for $170,000, and credit Accumulated Depletion – Mineral Deposit for the same amount. On the current period balance sheet, the company will show the cost of the mineral deposits of $500,000 less the accumulated depletion of $170,000, for a net amount of $330,000. The development and extraction of many types of natural resources require highly spec