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?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
When adjusting for depreciation at the end of an accounting period, which of the following journal entries is typically made?
A
Debit Depreciation Expense; Credit Equipment
B
Debit Depreciation Expense; Credit Accumulated Depreciation
C
Debit Equipment; Credit Depreciation Expense
D
Debit Accumulated Depreciation; Credit Depreciation Expense
Verified step by step guidance1
Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear or obsolescence of the asset during the accounting period.
Identify the correct accounts involved: Depreciation Expense is an expense account that records the cost of using the asset during the period, and Accumulated Depreciation is a contra-asset account that reduces the value of the asset on the balance sheet.
Determine the journal entry format: The typical journal entry for recording depreciation involves debiting the Depreciation Expense account to increase expenses and crediting the Accumulated Depreciation account to increase the contra-asset balance.
Avoid common mistakes: Do not credit the Equipment account directly, as this would reduce the asset's book value incorrectly. Instead, use Accumulated Depreciation to track the reduction in value over time.
Write the journal entry: The correct journal entry is 'Debit Depreciation Expense; Credit Accumulated Depreciation,' which ensures proper accounting treatment for depreciation at the end of the period.
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