What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is recorded?
A) Assets and stockholders' equity decrease
B) Assets and stockholders' equity increase
C) Assets and liabilities decrease
D) Liabilities increase and stockholders' equity decreases

Question

Quizplus · Accepted Answer

When the adjustment for depreciation expense is recorded, it reduces the value of the asset and corresponds to a decrease in the stockholders' equity. This is because the reduction in the asset's value is recognized as an expense on the income statement, which directly reduces the retained earnings in the equity section. Therefore, both assets and stockholders' equity decrease.

What Happens to the Accounting Equation When the Adjustment for Depreciation