A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to Depreciation Expense, $500, and a credit to Equipment, $500.

Question

Quizplus · Accepted Answer

The correct adjusting entry should be a debit to Depreciation Expense, $500, and a credit to Accumulated Depreciation, $500, not directly to the Equipment account. Accumulated Depreciation is a contra asset account that tracks the total depreciation of an asset over time, reducing the asset's book value on the balance sheet without reducing the reported value of the asset itself.

A Company Depreciates Its Equipment $500 a Year