The accounting entry for additions and improvements that increase the usefulness of equipment includes
A) debiting a liability account and crediting Building or Equipment.
B) debiting Cash and crediting Building or Equipment.
C) debiting Building or Equipment and crediting Cash or a liability account.
D) debiting Building Expense or Equipment Expense and crediting Cash or a liability account.

Question

Quizplus · Accepted Answer

When there are additions and improvements to equipment that increase its usefulness, we need to debit the Equipment account (or Building account, depending on the nature of the improvement) to reflect the increase in value and usefulness of the asset. We then credit either the Cash account (if we paid for the improvements in cash) or a liability account (if we took out a loan or incurred an accounts payable for the improvements) to reflect the decrease in our cash balance or the increase in our debt. Therefore, choice C is correct because it correctly accounts for the additions and improvements.

The Accounting Entry for Additions and Improvements That Increase the Usefulness