The accumulated depletion of a natural resource is reported on the:

• A. income statement as an expense
• B. balance sheet as a current liability
• C. statement of cash flows under investing activities
• D. balance sheet as a contra asset account

Answer: (D)

Verified step by step guidance

1. Understand the concept of accumulated depletion: Accumulated depletion refers to the total amount of depletion expense recorded over time for a natural resource, such as minerals, oil, or timber. It is similar to accumulated depreciation but applies to natural resources.
2. Recognize the classification of accumulated depletion: Accumulated depletion is not an expense reported on the income statement. Instead, it is a contra asset account that reduces the value of the natural resource asset on the balance sheet.
3. Identify the placement on the balance sheet: On the balance sheet, accumulated depletion is reported as a contra asset account, which is subtracted from the natural resource asset's original cost to show its net book value.
4. Understand why it is not a current liability: Accumulated depletion does not represent an obligation or liability; it is a reduction in the asset's value, so it cannot be classified as a current liability.
5. Clarify why it is not part of the statement of cash flows: Accumulated depletion is a non-cash accounting entry and does not directly affect cash flows. Therefore, it is not reported under investing activities in the statement of cash flows.