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In an adjusting entry context, what does an asset’s cost less accumulated depreciation represent?
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3. Accrual Accounting Concepts
Adjusting Entries: Depreciation
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In adjusting entries for depreciation, what is the normal balance of Accumulated Depreciation (a contra-asset account)?
A
Debit
B
Zero balance because it is closed to Income Summary each period
C
Credit
D
Either debit or credit depending on the depreciation method used
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Understand that Accumulated Depreciation is a contra-asset account, which means it offsets an asset account on the balance sheet.
Recall that asset accounts normally have a debit balance, so contra-asset accounts have the opposite normal balance, which is a credit.
Recognize that when recording depreciation expense, the adjusting entry debits Depreciation Expense and credits Accumulated Depreciation.
Note that Accumulated Depreciation accumulates over time and is not closed to Income Summary, so it maintains a credit balance.
Conclude that the normal balance of Accumulated Depreciation is a credit, regardless of the depreciation method used.
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