The adjusting entry to recognize periodic depreciation expense has what effect on the basic accounting equation?
A)Decrease in assets,decrease in liabilities
B)Decrease in assets,increase in liabilities
C)Decrease in assets,increase in stockholders' equity
D)Decrease in assets,decrease in stockholders' equity
E)None of these

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense, which means it does not involve any physical flow of cash. The adjusting entry to recognize periodic depreciation expense decreases the value of the assets and reduces the stockholders' equity. Thus, the basic accounting equation is affected by a decrease in assets and a decrease in stockholders' equity. Therefore, the correct answer is D) Decrease in assets, decrease in stockholders' equity.

The Adjusting Entry to Recognize Periodic Depreciation Expense Has What