Which of the following is the correct year-end adjusting entry to record the first year's depreciation expense for a used machine?

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

Answer: (C)

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 is recorded as an expense to reflect the usage or wear and tear of the asset during the accounting period.
2. Identify the correct accounts involved: Depreciation Expense is an expense account that reflects the cost of using the asset, while Accumulated Depreciation is a contra-asset account that reduces the book value of the asset on the balance sheet.
3. Determine the correct journal entry: The adjusting entry for depreciation involves debiting Depreciation Expense to record the cost of the asset's usage and crediting Accumulated Depreciation to reflect the reduction in the asset's value.
4. Avoid common errors: Do not debit or credit the Equipment account directly, as this account reflects the original cost of the asset and is not adjusted for depreciation. Similarly, do not reverse the roles of Depreciation Expense and Accumulated Depreciation.
5. Write the adjusting entry: The correct year-end adjusting entry is: Debit Depreciation Expense; Credit Accumulated Depreciation. This ensures that the expense is recorded on the income statement and the reduction in asset value is reflected on the balance sheet.