Multiple Choice
Which of the following is the correct adjusting journal entry to record depreciation expense for the period?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
Which costs does a company expense after a long-term asset is put into use in the business?
A
Acquisition cost
B
Salvage value
C
Installation cost
D
Depreciation expense
Verified step by step guidance1
Understand the concept of depreciation expense: Depreciation is the systematic allocation of the cost of a tangible long-term asset over its useful life. It represents the wear and tear or usage of the asset as it contributes to revenue generation.
Identify the costs associated with a long-term asset: Acquisition cost, salvage value, and installation cost are all part of the initial costs incurred to acquire and prepare the asset for use. These costs are capitalized, meaning they are recorded as part of the asset's value on the balance sheet.
Recognize when depreciation expense begins: Once the long-term asset is put into use in the business, the company starts expensing depreciation. This is done to match the cost of the asset with the revenue it helps generate, following the matching principle in accounting.
Calculate depreciation expense: Use a depreciation method such as straight-line, declining balance, or units of production. For example, in the straight-line method, the formula is: . This calculates the annual depreciation expense.
Record depreciation expense: Each accounting period, the depreciation expense is recorded in the income statement as an expense, and the accumulated depreciation is updated on the balance sheet to reduce the asset's book value.
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