Multiple Choice
In the adjusting entries process for depreciation, is Accumulated Depreciation a temporary account?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
Which of the following best describes depreciation in financial accounting?
A
A systematic allocation of the cost of a tangible long-lived asset to expense over its useful life
B
An annual adjustment that increases the market value of a long-lived asset to fair value and records a gain
C
A one-time write-off of an asset’s entire cost in the year the asset is purchased
D
A process of setting aside cash in a separate account to replace an asset when it wears out
Verified step by step guidance1
Understand that depreciation in financial accounting refers to the process of allocating the cost of a tangible long-lived asset over its useful life, rather than expensing the entire cost at once.
Recognize that depreciation is a systematic and rational method, meaning it spreads the expense evenly or according to a pattern that reflects the asset's usage or wear and tear.
Note that depreciation does not increase the asset's market value or involve revaluations; it is about cost allocation, not valuation adjustments.
Understand that depreciation is not a one-time write-off; instead, it is recorded periodically (usually annually) to match the expense with the revenue generated by the asset.
Realize that depreciation is an accounting concept and does not involve setting aside cash; it is a non-cash expense that affects the income statement and the asset's book value on the balance sheet.
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