(a) Explain the purpose of the two accounts: Depreciation Expense and Accumulated Depreciation. (b) What is...

(a) Explain the purpose of the two accounts: Depreciation Expense and Accumulated Depreciation. (b) What is the normal balance of each account? (c) Is it customary for the balances of the two accounts to be equal in amount? (d) Why would they not be? (e) In what financial statements, if any, will each account appear?

Expert Solution

a) Depreciation expense:

Depreciation is a method of allocating the cost of a company’s fixed asset over its useful period of life for the period the asset is used. The purpose of the Depreciation Expense account is to spread the cost of an asset over its useful life.

Accumulated depreciation:

Accumulated depreciation is the total amount of depreciation expense deducted, starting from the time asset acquired till date, or it is a running total of depreciation for an asset over the period of time it is kept in the company.

The purpose of the Accumulated depreciation account is to show the total amount of depreciation from the date of purchase of the asset to the date of sale of the asset.

b) Depreciation Expense account (Expense account) - debit balance, and Accumulated Depreciation account (Contra-asset account) - credit balance.

c) No, it is not customary for the balances of the two accounts to be equal in amount.

d) Depreciation Expense account is a temporary account, and it is closed at the end of the year. But the amount of accumulated depreciation for an asset or will increase over time as depreciation expenses continue to be credited against the assets.

e) Accumulated depreciation account appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

Depreciation expense is recorded in the income statement as a non-cash expense that reduces the company's net income.

ekkarill92 answered 1 year ago

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