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

When a company purchases a fixed asset, which of the following is deducted on the income statement in the period of purchase?

Accumulated depreciation

Depreciation expense for the period

Cash paid for the asset

The full cost of the fixed asset

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Verified step by step guidance

Understand the nature of the question: The problem is asking which cost related to a fixed asset purchase is deducted on the income statement in the period of purchase. This requires knowledge of how fixed assets and their related expenses are treated in financial accounting.

Review the treatment of fixed assets: When a company purchases a fixed asset, the full cost of the asset is recorded on the balance sheet as an asset, not directly on the income statement. The cost is then allocated over the useful life of the asset through depreciation.

Define depreciation expense: Depreciation expense represents the portion of the fixed asset's cost that is allocated to the income statement for a specific period. This is the amount deducted on the income statement in the period of purchase, assuming the asset is put into use during that period.

Clarify the role of accumulated depreciation: Accumulated depreciation is a contra-asset account on the balance sheet that accumulates all depreciation expenses over time. It is not deducted on the income statement but rather reduces the book value of the fixed asset on the balance sheet.

Conclude the correct answer: The only item from the options provided that is deducted on the income statement in the period of purchase is the depreciation expense for the period, as it reflects the allocation of the asset's cost for that specific period.