Question

On April 1, 2017, Ayayai Corp. paid $ 45100 cash for equipment that will be used in business operations. The equipment will be used for four years. Ayayai's records depreciation expense of $ 45100 for the calendar year ending December 31, 2017. Which accounting principle has been violated?

A. Cash principle.

B. No principle has been violated.

C. Depreciation principle.

D. Expense recognition principle.

Answer 1

Ans (C ) Ayayai Corporation violated depreciation principle because its charge whole amount of equipment purchase as an expense in the year of purchase.

Depreciation: Fixed Assets are used in the business for more than one accounting period, Fixed assets is also called depreciable assets. Depreciation means decline in the value of fixed assets due to use, passage of time or obsolescence.

Cash Principle: As per Cash Principle entries are recorded in the books when cash is actually received or paid.

Depreciation Principle: The calculation of depreciation expense followed matching principle.

Matching principle states that expenses incurred in an accounting period should be matched with revenues during the period. Cost like depreciation of fixed assets is divided over the periods during which the asset is used.

Expense Recognition Principle: This principle states that expense must be recognized in the same year in which revenue associated with these expense are also recognized.