When a company purchases a fixed asset, which of the following is deducted on the income statement in the period of purchase?

• A. Accumulated depreciation
• B. Depreciation expense for the period
• C. Cash paid for the asset
• D. The full cost of the fixed asset

Answer: (B)

Verified step by step guidance

1. Understand the nature of the question: The problem is asking which cost related to a fixed asset purchase is deducted on the income statement in the period of purchase. This requires knowledge of how fixed assets and their related expenses are treated in financial accounting.
2. Review the treatment of fixed assets: When a company purchases a fixed asset, the full cost of the asset is recorded on the balance sheet as an asset, not directly on the income statement. The cost is then allocated over the useful life of the asset through depreciation.
3. Define depreciation expense: Depreciation expense represents the portion of the fixed asset's cost that is allocated to the income statement for a specific period. This is the amount deducted on the income statement in the period of purchase, assuming the asset is put into use during that period.
4. Clarify the role of accumulated depreciation: Accumulated depreciation is a contra-asset account on the balance sheet that accumulates all depreciation expenses over time. It is not deducted on the income statement but rather reduces the book value of the fixed asset on the balance sheet.
5. Conclude the correct answer: The only item from the options provided that is deducted on the income statement in the period of purchase is the depreciation expense for the period, as it reflects the allocation of the asset's cost for that specific period.