In recording the adjusting entry for depreciation, which account is debited and which account is credited?

• A. Debit Equipment; Credit Depreciation Expense
• B. Debit Depreciation Expense; Credit Accumulated Depreciation
• C. Debit Accumulated Depreciation; Credit Depreciation Expense
• D. Debit Depreciation Expense; Credit Equipment

Answer: (B)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear or obsolescence of the asset.
2. Identify the accounts involved: Depreciation Expense is an expense account that represents the cost of using the asset during the accounting period. Accumulated Depreciation is a contra-asset account that reduces the value of the asset on the balance sheet.
3. Determine the correct adjusting entry: The adjusting entry for depreciation involves debiting the Depreciation Expense account to record the expense and crediting the Accumulated Depreciation account to reflect the reduction in the asset's value.
4. Avoid common mistakes: Do not debit Equipment or credit Depreciation Expense directly, as these actions would misrepresent the financial statements. Equipment remains unchanged, and Depreciation Expense is only debited to record the expense.
5. Write the journal entry: The correct journal entry is: Debit Depreciation Expense; Credit Accumulated Depreciation. This ensures the expense is recorded in the income statement and the reduction in asset value is reflected in the balance sheet.