How is depreciation recorded at year-end?

How is depreciation recorded at year-end?

• A. Debit Accumulated Depreciation; Credit Depreciation Expense.
• B. Debit Cash; Credit Depreciation Expense.
• C. Debit Depreciation Expense; Credit Cash.
• D. Debit Depreciation Expense; Credit Accumulated Depreciation.

Answer: (D)

Depreciation is a noncash expense that allocates the cost of a long-term asset over its useful life. Each period you recognize this allocation by debiting Depreciation Expense (increasing the expense on the income statement) and crediting Accumulated Depreciation (a contra-asset that reduces the asset’s carrying value on the balance sheet). The result is higher expense and a higher accumulated depreciation balance, which lowers net book value of the asset without changing cash. Entries involving cash or debiting the wrong account would misstate the effect: depreciation does not involve cash, so debiting cash is incorrect; accumulating depreciation should be increased (credit), not decreased (debit); thus the correct entry is to debit Depreciation Expense and credit Accumulated Depreciation.

Depreciation is a noncash expense that allocates the cost of a long-term asset over its useful life. Each period you recognize this allocation by debiting Depreciation Expense (increasing the expense on the income statement) and crediting Accumulated Depreciation (a contra-asset that reduces the asset’s carrying value on the balance sheet). The result is higher expense and a higher accumulated depreciation balance, which lowers net book value of the asset without changing cash.

Entries involving cash or debiting the wrong account would misstate the effect: depreciation does not involve cash, so debiting cash is incorrect; accumulating depreciation should be increased (credit), not decreased (debit); thus the correct entry is to debit Depreciation Expense and credit Accumulated Depreciation.