Multiple Choice
For accounting purposes, depreciation is best described as which of the following?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
Regarding adjusting entries for depreciation, which statement best describes the Accumulated Depreciation account?
A
It is an expense account that accumulates total depreciation recognized over the asset’s life.
B
It is a liability account representing amounts owed to creditors for the asset’s purchase.
C
It is a revenue account that records cash proceeds from selling used equipment.
D
It is a contra-asset account that reduces the book value of the related asset on the balance sheet.
Verified step by step guidance1
Understand that depreciation is the process of allocating the cost of a tangible fixed asset over its useful life.
Recognize that the Accumulated Depreciation account is used to record the total amount of depreciation expense charged against an asset since it was acquired.
Know that Accumulated Depreciation is not an expense account itself, but rather a contra-asset account, meaning it offsets the asset's value on the balance sheet.
Recall that a contra-asset account has a credit balance, which reduces the gross amount of the related asset to arrive at the asset's net book value.
Therefore, the Accumulated Depreciation account appears on the balance sheet as a deduction from the asset's original cost, reflecting the asset's depreciated value.
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