Question

A depreciation deduction for a machine used in the production of inventory is likely to be classified as a:

a. Capital expense
b. Operating expense
c. Direct expense
d. Indirect expense

Answer 1

The depreciation deduction for a machine used in the production of inventory is classified as a capital expense, as it is a non-cash expense related to allocating the cost of physical assets over their useful life.

Step-by-step explanation:

A depreciation deduction for a machine used in the production of inventory is likely to be classified as a capital expense. Depreciation is the process of allocating the cost of a physical asset over its useful life, and it is considered a non-cash expense that reduces the value of the asset on the balance sheet over time. In the context of accounting, a capital expense (capex) is money spent on purchasing, upgrading, or maintaining physical assets such as machinery, which generates economic benefits for a company over several years. Since the machine is used in the production of inventory, the depreciation associated with it is a way of matching the cost of the machine to the periods in which the generated revenue from the inventory is recognized.