Multiple Choice
Which account is credited in an adjusting entry to record depreciation on machinery?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which financial statement reports the amount of accumulated depreciation?
A
Balance Sheet
B
Statement of Cash Flows
C
Statement of Retained Earnings
D
Income Statement
Verified step by step guidance1
Understand the concept of accumulated depreciation: Accumulated depreciation is the total amount of depreciation expense that has been recorded for an asset over its useful life. It is a contra-asset account, meaning it reduces the value of the related asset on the financial statements.
Identify the financial statement where accumulated depreciation is reported: Accumulated depreciation is reported on the Balance Sheet because it is directly tied to the value of long-term assets, such as property, plant, and equipment.
Learn the placement of accumulated depreciation on the Balance Sheet: On the Balance Sheet, accumulated depreciation is listed under the assets section, typically as a deduction from the gross value of the related asset. For example, if the gross value of equipment is \$100,000 and accumulated depreciation is \$30,000, the net book value of the equipment would be \$70,000.
Understand why accumulated depreciation is not reported on other financial statements: The Statement of Cash Flows focuses on cash transactions, the Statement of Retained Earnings tracks changes in retained earnings, and the Income Statement reports revenues and expenses. Accumulated depreciation does not directly impact these statements because it is a non-cash account and does not affect retained earnings or net income directly.
Review the purpose of the Balance Sheet: The Balance Sheet provides a snapshot of a company's financial position at a specific point in time, including assets, liabilities, and equity. Accumulated depreciation is included to show the net value of long-term assets, which is essential for understanding the company's financial health.
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