Question

Which of the following is true of depreciation accounting?

a. It is not a matter of valuation.
b. It is part of the matching of revenues and expenses.
c. It retains funds by reducing income taxes and dividends.
d. All of these answer choices are correct.

Answer 1

All of the provided answer choices are correct regarding depreciation accounting: it is not about current valuation, it ensures the matching of revenues with expenses, and it helps retain funds by lowering taxable income.

Step-by-step explanation:

The correct answer to the question about the nature of depreciation accounting is that d. All of these answer choices are correct. Depreciation accounting indeed is not a matter of valuation because it is a systematic allocation of the cost of an asset over its useful life rather than a determination of the current market value of the asset. It is part of the matching of revenues and expenses, as it aligns the cost of using an asset with the revenue generated during the same period that asset is used, which is a fundamental principle in accrual accounting. Lastly, depreciation affects cash flow positively by reducing taxable income, hence it retains funds by reducing income taxes and, potentially, dividends.