Answer to Question #180490 in Accounting for Milan

Question

Debit Asset Retirement Cost

Credit Asset Retirement Obligation

• What does this journal entry mean?

Debit Accretion Expense

Credit Asset Retirement Obligation

• What does this journal entry mean?

Debit Asset Retirement Obligation

Credit Cash

• What does this journal entry mean?

Answer 1

Debit Asset Retirement Cost

Credit Asset Retirement Obligation(ARO)

An asset retirement obligation is a liability for removing property, equipment, or leasehold improvements at the end of the lease term. Asset retirement cost is the offsetting asset created when an asset retirement obligation (ARO) is recognized. The asset retirement cost increases the carrying amount of the fixed asset for which it created the ARO. The journal entry to record Asset Retirement cost would be a debit to accretion expense, offset by a credit to the Asset Retirement obligation since it’s a liability.

Debit Accretion Expense

Credit Asset Retirement Obligation

Accretion is recognized as an operating expense in income and often associated with an asset retirement obligation. The journal entry to record this cost would be a debit to accretion expense, offset by a credit to the ARO liability.

Debit Asset Retirement Obligation

Credit Cash

The journal is to offset the credit portion of the asset retirement liability entry; An entity must estimate the cash flows required to settle a retirement liability; Cash is credited as an outflow to imply the payment of liability (ARO) or reduction.