Question

Which of the following entries is necessary to close the appropriate depreciation account at the end of the year?

A) debit Accumulated Depreciation and credit Income Summary
B) debit Depreciation Expense and credit Income Summary
C) debit Income Summary and credit Accumulated Depreciation
D) debit Income Summary and credit Depreciation Expense

Answer 1

To close the depreciation expense, the correct entry is B) debit Depreciation Expense and credit Income Summary. This resets the Depreciation Expense account to zero and moves its balance to the Income Summary account at the end of the accounting period.

Step-by-step explanation:

The question is asking which journal entry is necessary to close the depreciation expense at the end of an accounting period. To close the depreciation expense, you would use the following journal entry: B) debit Depreciation Expense and credit Income Summary. This is because the end-of-period closing entries involve moving the balances of temporary accounts (such as revenues, expenses, and dividends) to the owner's equity account or, in the case of a corporation, to the retained earnings account. Depreciation Expense is a temporary account that accumulates the cost allocated for the usage of fixed assets for the period, and it needs to be closed to reflect that the period's expenses have been accounted for.

Here is a step-by-step explanation of the entry:

1. Debit the Depreciation Expense account to reduce its balance to zero.
2. Credit the Income Summary account to transfer the expense's balance to it.

Upon completing this entry, the Depreciation Expense account will have a zero balance and be ready for the next period's depreciation expense recording. Note that we do not directly affect the Accumulated Depreciation account during this process; its balance carries forward to the next period and is not closed.