Multiple Choice
Which of the following is the correct year-end adjusting entry to record the first year's depreciation expense for a used machine?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
For accounting purposes, depreciation is best described as which of the following?
A
An allocation of the cost of a tangible long-lived asset to expense over its useful life
B
A recognition of a decline in the market value of an asset due to changes in supply and demand
C
A process of adjusting an asset’s recorded cost to its current fair market value each period
D
An accumulation of cash set aside each period to replace an asset at the end of its useful life
Verified step by step guidance1
Understand that depreciation in accounting is a systematic allocation process, not a valuation or cash accumulation process.
Recognize that depreciation spreads the cost of a tangible long-lived asset over the periods benefiting from its use, matching expense with revenue generation.
Distinguish depreciation from market value changes, which are not recorded through depreciation but may be reflected in impairment or fair value adjustments.
Note that depreciation does not involve setting aside cash; it is an accounting expense that reduces the asset's book value over time.
Conclude that depreciation is best described as the allocation of the cost of a tangible long-lived asset to expense over its useful life.
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