In adjusting entries for depreciation, accumulated depreciation is best classified as which type of account on the balance sheet?

• A. A liability account representing amounts owed to creditors
• B. A contra asset account that is reported with the related property, plant, and equipment
• C. A revenue account recognized when depreciation is recorded
• D. An expense account reported on the income statement

Answer: (B)

Verified step by step guidance

1. Understand the nature of accumulated depreciation: it represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.
2. Recall that accumulated depreciation reduces the book value of the related asset on the balance sheet, but it is not a liability or an expense itself.
3. Recognize that accumulated depreciation is classified as a contra asset account, meaning it is paired with and reduces the value of a related asset account (such as property, plant, and equipment).
4. Note that a contra asset account has a credit balance, which is opposite to the normal debit balance of asset accounts, and it appears on the balance sheet just below the related asset.
5. Confirm that accumulated depreciation is not a revenue or expense account; depreciation expense is recorded separately on the income statement, while accumulated depreciation accumulates on the balance sheet.