Which of the following is an example of depreciation in financial accounting?

• A. Writing off an uncollectible account by debiting Bad Debt Expense and crediting Accounts Receivable.
• B. Recognizing unearned revenue that has been earned by debiting Unearned Revenue and crediting Service Revenue.
• C. Recording annual depreciation on a delivery truck by debiting Depreciation Expense and crediting Accumulated Depreciation.
• D. Recording the expiration of prepaid insurance by debiting Insurance Expense and crediting Prepaid Insurance.

Answer: (C)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life. It reflects the usage and wear and tear of the asset over time.
2. Identify the accounts involved in depreciation: Typically, depreciation involves debiting an expense account called Depreciation Expense and crediting a contra-asset account called Accumulated Depreciation, which reduces the book value of the asset.
3. Analyze each option to see if it matches the depreciation process: For example, writing off uncollectible accounts involves Bad Debt Expense and Accounts Receivable, which relates to receivables, not fixed assets.
4. Recognize that recording annual depreciation on a delivery truck by debiting Depreciation Expense and crediting Accumulated Depreciation correctly follows the depreciation accounting treatment.
5. Confirm that other options like recognizing earned revenue or expiring prepaid insurance involve different accounts and concepts, such as revenue recognition and prepaid expense allocation, not depreciation.