Multiple Choice
Which of the following is an example of depreciation in financial accounting?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
In the adjusted trial balance, Accumulated Depreciation is classified as which type of account?
A
Contra asset account (reduces the related asset account such as Equipment)
B
Revenue account (increases net income over time)
C
Expense account (recognized in the period as Depreciation Expense)
D
Liability account (obligation to pay for the asset)
Verified step by step guidance1
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.
Recall that Accumulated Depreciation is not an expense itself, but rather a contra account that reduces the book value of the related asset on the balance sheet.
Identify that a contra asset account is paired with an asset account and has a credit balance, which offsets the debit balance of the asset account.
Recognize that Depreciation Expense is a separate account that appears on the income statement and reflects the depreciation cost for the current period.
Conclude that in the adjusted trial balance, Accumulated Depreciation is classified as a contra asset account because it reduces the carrying amount of the asset, such as Equipment.
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