Meaning of Depreciation Account - SS1 Accounting Past Questions and Answers - page 1
What does a depreciation account show?
An increase in the value of a tangible asset over time
A decrease in the value of a tangible asset over time
The total cost of a tangible asset
The revenue generated by a tangible asset
Why is a depreciation account important for a company?
It reflects the true cost of using an asset over time
It shows the total value of an asset
It increases the net income of the company
It reduces the company's tax liability
What is the purpose of recognizing a depreciation expense over time?
To increase the value of an asset
To accurately reflect the cost of using an asset
To reduce the value of an asset to zero
To show the total cost of an asset
What is an example of a long-term asset that may require depreciation?
Office supplies
Inventory
Buildings and equipment
Cash
What is the purpose of a depreciation account?
The purpose of a depreciation account is to record the decrease in the value of a tangible asset over time.
How does recognizing a depreciation expense over time benefit a company?
Recognizing a depreciation expense over time helps to accurately reflect the true cost of using an asset, reduces the potential for a large, one-time expense when the asset is eventually replaced, and is important for calculating the company's net income and tax liability.