Which statement about recording depreciation is correct?

Which statement about recording depreciation is correct?

• A. Depreciation is never recorded in the accounts.
• B. Depreciation is recorded using cash-basis entries.
• C. Depreciation should be recorded with journal entries.
• D. Depreciation does not affect the accounting equation.

Answer: (C)

Depreciation represents allocating the cost of a long-lived asset over its useful life. In accrual accounting, expenses are recorded when incurred, not when cash is paid. To recognize this allocation, you make a journal entry at the end of the period: debit Depreciation Expense and credit Accumulated Depreciation. This does two things: it increases expenses on the income statement, lowering net income and, in turn, reducing equity through lower retained earnings; and it adds to the accumulated depreciation contra-asset, which reduces the asset’s net book value on the balance sheet. The cash account isn’t touched in this entry because depreciation is a non-cash expense. So recording depreciation with journal entries is the correct approach. The other statements misstate the method or the impact: depreciation is not never recorded, it’s not recorded with cash-basis entries in accrual accounting, and it does affect the accounting equation by altering both assets (via accumulated depreciation) and equity (via net income).

Depreciation represents allocating the cost of a long-lived asset over its useful life. In accrual accounting, expenses are recorded when incurred, not when cash is paid. To recognize this allocation, you make a journal entry at the end of the period: debit Depreciation Expense and credit Accumulated Depreciation. This does two things: it increases expenses on the income statement, lowering net income and, in turn, reducing equity through lower retained earnings; and it adds to the accumulated depreciation contra-asset, which reduces the asset’s net book value on the balance sheet. The cash account isn’t touched in this entry because depreciation is a non-cash expense. So recording depreciation with journal entries is the correct approach. The other statements misstate the method or the impact: depreciation is not never recorded, it’s not recorded with cash-basis entries in accrual accounting, and it does affect the accounting equation by altering both assets (via accumulated depreciation) and equity (via net income).