Question

Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrue Transaction.

A. On January 1 of the current year, the company purchased a new hauling van at a cash cost of $23,700. Depreciation estimated at $3,100 for the year has not been recorded for the current year.

Answer 1

The transaction of purchasing a new hauling van and not yet recording the associated annual depreciation is classified as a deferred expense, which will be recognized over the asset's useful life.

Step-by-step explanation:

The transaction described involves the purchase of a new hauling van with an associated depreciation expense that has not yet been recorded. This transaction relates to a deferred expense, as the cost of the van is initially recorded as an asset and its cost is allocated over future periods as depreciation.

Deferred expenses, often referred to as prepaid expenses, are costs that have been incurred but not yet expensed through the income statement.

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.

In this case, the company has estimated an annual depreciation of $3,100 for the van, which should be recognized as an expense on the income statement over the year. Since this depreciation has not yet been recorded, it represents a future expense that will reduce the company's net income when it is recognized.

It's important to maintain an updated balance sheet with accurate T-account representations to reflect the actual values of assets and liabilities, which include adjusting for depreciation to show the correct value of the van as an asset over time.