Question

Office equipment was purchased during the month of July for $12,000. Assume that its useful life is five years (60 months) and it will be worthless at the end of that period. What is the adjusting entry for depreciation at the end of July?

A) Debit Depreciation Expense $200, Credit Accumulated Depreciation $200
B) Debit Accumulated Depreciation $200, Credit Depreciation Expense $200
C) Debit Depreciation Expense $2,000, Credit Accumulated Depreciation $2,000
D) Debit Accumulated Depreciation $2,000, Credit Depreciation Expense $2,000

Answer 1

The correct adjusting entry for the depreciation of the office equipment at the end of July is to Debit Depreciation Expense $200, and Credit Accumulated Depreciation $200, which corresponds to one month's worth of depreciation. The correct option is b.

Step-by-step explanation:

The student has asked about the adjusting entry for depreciation of office equipment that was purchased for $12,000 with a useful life of five years, after which it will be worthless. To calculate the monthly depreciation expense, divide the cost of the equipment by the number of months in its useful life, $12,000 ÷ 60 months equals to $200 per month. Therefore, at the end of July, the adjusting entry is:

• Debit Depreciation Expense $200
• Credit Accumulated Depreciation $200

This entry reflects the expense recognition principle, which states that expenses should be recognized in the period in which they are incurred in order to generate revenues. In this case, the office equipment is being used to generate revenue during its useful life, hence the need for a depreciation expense each month.