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

Why is it necessary to make a recurring journal entry for the depreciation of a vehicle?

To record the cash outflow when the vehicle is purchased.

To recognize revenue earned from using the vehicle.

To systematically allocate the cost of the vehicle over its useful life in accordance with the matching principle.

To increase the market value of the vehicle on the balance sheet.

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible asset, such as a vehicle, over its useful life. This ensures that the expense is recognized in the periods when the asset contributes to generating revenue, adhering to the matching principle.

Review the matching principle: The matching principle in accounting states that expenses should be recognized in the same period as the revenues they help generate. Depreciation aligns with this principle by spreading the cost of the vehicle over its useful life.

Identify the purpose of recurring journal entries: Recurring journal entries for depreciation are necessary to reflect the gradual reduction in the asset's value on the balance sheet and to record the depreciation expense on the income statement periodically.

Clarify why other options are incorrect: Depreciation does not record cash outflows (cash outflows occur at the time of purchase), does not recognize revenue earned from using the vehicle, and does not increase the market value of the vehicle on the balance sheet.

Conclude the correct answer: The recurring journal entry for depreciation is necessary to systematically allocate the cost of the vehicle over its useful life in accordance with the matching principle, ensuring accurate financial reporting.