Multiple Choice
In the balance sheet, accumulated depreciation is classified as which of the following?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
In financial accounting, Accumulated Depreciation is classified as which type of account on the balance sheet?
A
Asset account (increases total assets)
B
Expense account (reported on the income statement as Depreciation Expense)
C
Contra asset account (reduces the related property, plant, and equipment asset account)
D
Liability account (represents an obligation to creditors)
Verified step by step guidance1
Step 1: Understand the nature of Accumulated Depreciation. It represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.
Step 2: Recognize that Accumulated Depreciation is not an asset itself, but it is linked to an asset account, specifically property, plant, and equipment (PPE).
Step 3: Learn that Accumulated Depreciation is classified as a contra asset account, meaning it has a credit balance and reduces the carrying amount of the related asset on the balance sheet.
Step 4: Differentiate Accumulated Depreciation from Depreciation Expense, which is an expense account reported on the income statement and reflects the depreciation for a specific period.
Step 5: Conclude that on the balance sheet, Accumulated Depreciation appears as a deduction from the gross amount of the related asset, thereby reducing the net book value of the asset.
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