Question

Which of the following is true about depreciation?

a) Depreciation expense is a special kind of prepaid expense.
b) Depreciation is an asset account.
c) Depreciation reflects a decline in an asset's market value.
d) Depreciation is not an expense account.

Answer 1

Depreciation is an expense account that represents the allocation of an asset's cost over its useful life.

Step-by-step explanation:

Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It is not a prepaid expense, but rather an expense that recognizes the reduction in value of an asset over time. Option a) is incorrect because depreciation expense is not a prepaid expense.

Depreciation is typically recorded as an expense on the income statement and as a contra-asset on the balance sheet. This means that it is not an asset account, as mentioned in option b).

Depreciation does not directly reflect a decline in an asset's market value. It reflects the allocation of an asset's cost over its useful life. While an asset may indeed decline in market value over time, depreciation is not a direct measure of that decline. Option c) is therefore false.

Based on the above explanations, the correct answer is option d) Depreciation is an expense account. It represents the systematic allocation of an asset's cost over its estimated useful life.

Answer 2

a) Depreciation expense is a special kind of prepaid expense.

Step-by-step explanation:

Depreciation expense is treated the same way as amortized costs, which are actually a type of "prepaid" expenses. You depreciate an asset over time in a similar manner as you accrue prepaid expenses. Accumulated depreciation and carrying value are not meant to reflect an asset's market value since a can company can choose accelerated depreciation, bonus depreciation or even expensing the asset. Accumulated depreciation is a contra asset account that reduces the asset's carrying value.