Which of the following statements is considered incorrect?
A)Depreciation methods provide a systematic way to expense the cost of an asset,although this expense is not a negative cash flow.
B)Depreciation is an allocation of the original cost of an asset to the periods in which the asset is used.
C)Accumulated depreciation is the summation of the amount of the original cost of an asset already written off to expense in prior periods.
D)Accumulated depreciation is not a pile of cash waiting to be used.
E)Depreciation expense provides a means of setting aside cash for the replacement of an asset.

Question

Quizplus · Accepted Answer

Depreciation expense does not set aside cash for the replacement of an asset. Instead, it is a non-cash expense that reduces the book value of the asset and reflects its wear and tear over time. Cash set aside for the replacement of an asset would be considered a capital expenditure or a reserve account.

Which of the Following Statements Is Considered Incorrect