Assume that a company owns machinery. When it bought the machinery, it recorded a reduction in cash, and an increase in an asset. At the end of the month, what entry, if any, should be recorded using accrual accounting to reflect the fact that the machinery is now older?
A) No entry is needed, since no cash payment is being made at the end of the month.
B) An entry recording an expense and reducing total assets and total equity
C) An entry recording an expense, increasing a liability, and reducing total equity
D) An entry recording an expense, increasing total assets, and reducing equity

Question

Quizplus · Accepted Answer

Depreciation of the machinery is recorded as an expense, which reduces the book value of the asset (machinery), total assets, and total equity, reflecting the usage and wear of the machinery over time.

Assume That a Company Owns Machinery