Question

If an entry to adjust depreciation is not recorded at the end of the period, Depreciation Expense on the income statement will be a. overstated. b. understated. c. unaffected because the omitted entry affects two accounts that cancel each other out. d. unaffected because Depreciation Expense is reported on the balance sheet, not on the income statement.

Answer 1

The answer is (B)- Understated.

Step-by-step explanation:

Depreciation is charged on depreciable assets to match depreciation expenses which represent economic benefit consumed with the revenue generated for the period under consideration. It is an accounting estimate which involved alot of discretion from the users to determine which method to use for the computation i.e either straight line or reducing balance method or any other methods considered suitable.

Option A-False. It can only be overstated if more than one adjustment is posted on the same asset

Option B- True.

Option C- False. The omitted entry affects depreciation expense(DR) and Accumulated Depreciation (CR)

Option D-False. It is reported on balance sheet as accumulated depreciation and on Income statement as depreciation expense

Answer 2

Understated

Step-by-step explanation:

In accounting, long-term assets are said to be subject to wear and tear. This results from their constant use in business operations. This wear and tear is also known as depreciation. Depreciation thus, is the loss of value of the long-term assets that are used in business operations. In accounting, depreciation is recorded as an expense although no cash transactions are involved. Failure to record depreciation incurred in a financial year will amount to undervaluing or understating the depreciation expense for the year.