Multiple Choice
Which of the following best describes depreciation in financial accounting?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
Multiple Choice
In the balance sheet, accumulated depreciation is classified as which of the following?
A
A current liability that represents depreciation owed
B
An operating expense account reported on the income statement
C
A contra asset account that reduces the related property, plant, and equipment account
D
An intangible asset account that is amortized over time
Verified step by step guidance1
Understand the nature of accumulated depreciation: it represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.
Recall that accumulated depreciation is not a liability or an expense, but rather a contra asset account, meaning it offsets the value of a related asset on the balance sheet.
Identify the related asset: accumulated depreciation is linked to property, plant, and equipment (PP&E), reducing their book value over time.
Recognize that accumulated depreciation appears on the balance sheet as a deduction from the gross amount of PP&E to show the net book value of these assets.
Conclude that accumulated depreciation is classified as a contra asset account that reduces the carrying amount of property, plant, and equipment on the balance sheet.
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