Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

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Multiple Choice

If an adjusting entry includes a debit to Depreciation Expense and a credit to Accumulated Depreciation, what is the primary purpose of this adjustment?

To correct an error in the cash account

To recognize revenue earned but not yet received

To record the purchase of a new asset

To allocate the cost of a fixed asset over its useful life

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a fixed asset over its useful life. This ensures that the expense is matched with the revenue generated by the asset during its usage period.

Identify the accounts involved: Depreciation Expense is an income statement account that reflects the cost allocated for the current period, while Accumulated Depreciation is a contra-asset account on the balance sheet that accumulates the total depreciation recorded over time.

Recognize the purpose of the adjusting entry: The primary purpose of this adjustment is to allocate the cost of the fixed asset over its useful life, ensuring compliance with the matching principle in accounting.

Understand why other options are incorrect: The adjustment does not correct an error in the cash account, recognize revenue earned but not yet received, or record the purchase of a new asset. These are unrelated to depreciation adjustments.

Relate the adjustment to financial reporting: This entry ensures that the financial statements accurately reflect the expense associated with using the fixed asset during the period, providing a true and fair view of the company's financial position.