You are analyzing a small company's financials, and notice that the bookkeeper made the following entry

By Investopedia Staff AAA
Q:
You are analyzing a small company's financials, and notice that the bookkeeper made the following entry:
Depreciation Expense 300  
Automobile asset   300

Which is correct?
1. The entry is correct, but the asset should be a debit.
2. The entry is incorrect because the asset's value won't be tracked.
3. The entry is correct because the asset was disposed of.
4. The entry is incorrect because depreciation should be a credit.

A:

The best answer is 2. 1 is tempting, but wrong, because an asset "sounds like" a debit but the depreciation expense here should be an accumulating credit. 3 could be partly true, but the intent here is to record depreciation, not dispose of an asset. 4 is partly true, but 2 is better because the correct answer is:

Depreciation Expense 300  
Automobile asset   300

Which shows an account exists ("accumulated") to track book value of the asset as it changes over time.

Have a Financial Question?

RELATED FAQS

  1. Who benefits the most from prepaid expenses?

    Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ...
  2. If I am looking to get an Investment Banking job. What education do employers prefer? ...

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The ...
  3. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ...
  4. Which of the following terms are associated with the purchase/redemption of open-end ...

    The correct answer is b. Forward pricing is the SEC Rule that requires all transactions in open-end investment company shares ...
RELATED TERMS
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. CFA Institute

    Formerly known as the Association for Investment Management and ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  4. Security Analyst

    A financial professional who studies various industries and companies, ...

You May Also Like

Related Articles
  1. No results found.
Trading Center