Multiple Choice
In financial accounting, depreciation is considered a type of which of the following?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
In the adjusting entries process for depreciation, is Accumulated Depreciation a temporary account?
A
No; Accumulated Depreciation is a contra asset permanent (balance sheet) account that carries forward from period to period.
B
No; Accumulated Depreciation is a liability account reported with current liabilities and does not carry forward.
C
Yes; Accumulated Depreciation is a revenue account that increases net income and is closed each period.
D
Yes; Accumulated Depreciation is a temporary (nominal) account that is closed to Retained Earnings at the end of each period.
Verified step by step guidance1
Understand the classification of accounts: Temporary accounts (also called nominal accounts) include revenues, expenses, and dividends, which are closed at the end of each accounting period to Retained Earnings or Capital accounts. Permanent accounts (also called real accounts) include assets, liabilities, and equity accounts, which carry their balances forward to the next period.
Recognize that Accumulated Depreciation is a contra asset account, meaning it offsets the related asset account (such as Equipment or Buildings) on the balance sheet, reducing the asset's book value.
Since Accumulated Depreciation is linked to an asset and appears on the balance sheet, it is classified as a permanent account, not a temporary one.
Temporary accounts are closed at the end of the period to reset their balances to zero for the next period, but permanent accounts like Accumulated Depreciation maintain their balances and are not closed.
Therefore, in the adjusting entries process for depreciation, Accumulated Depreciation is not closed and continues to accumulate over time, reflecting the total depreciation expense recorded against the asset.
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