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

What is the effect of the adjusting entry for depreciation expense at the end of an accounting period?

It increases Depreciation Expense and increases Accumulated Depreciation.

It decreases Depreciation Expense and increases Equipment.

It increases Depreciation Expense and decreases Equipment.

It decreases Depreciation Expense and decreases Accumulated Depreciation.

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Verified step by step guidance

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 over time.

Recognize the accounts involved: Depreciation Expense is an income statement account that records the periodic cost of using the asset, while Accumulated Depreciation is a contra-asset account on the balance sheet that reduces the book value of the asset.

Determine the effect of the adjusting entry: At the end of the accounting period, the adjusting entry for depreciation increases Depreciation Expense (to reflect the cost incurred during the period) and increases Accumulated Depreciation (to accumulate the total depreciation recorded).

Understand why Equipment is not directly affected: The Equipment account remains unchanged because the reduction in value is recorded through Accumulated Depreciation, not by directly decreasing the Equipment account.

Review the correct answer: The correct effect of the adjusting entry is that it increases Depreciation Expense and increases Accumulated Depreciation, as this reflects the periodic allocation of the asset's cost and its accumulated reduction in value.