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 are the effects on the accounting equation from the adjustment for depreciation?

Assets decrease and equity decreases

Liabilities decrease and equity increases

Liabilities increase and assets decrease

Assets increase and equity increases

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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 represents the reduction in the value of an asset due to wear and tear, obsolescence, or usage.

Identify the impact of depreciation on the accounting equation: The accounting equation is Assets = Liabilities + Equity. Depreciation reduces the value of assets, specifically fixed assets, and also reduces equity because it is recorded as an expense, which decreases retained earnings.

Recognize how depreciation is recorded: Depreciation is recorded as a debit to Depreciation Expense (an equity account) and a credit to Accumulated Depreciation (a contra-asset account). This reduces the net book value of the asset and equity simultaneously.

Analyze the options provided: Based on the accounting equation, the correct effect of depreciation is that assets decrease (due to accumulated depreciation) and equity decreases (due to the expense reducing retained earnings). Liabilities are not affected by depreciation.

Conclude the correct answer: The correct answer is 'Assets decrease and equity decreases,' as depreciation impacts both the asset and equity sides of the accounting equation.