What is the primary purpose of depreciation in accounting?
Practice Questions
1 question
Q1
What is the primary purpose of depreciation in accounting?
To reduce taxable income
To reflect the consumption of an asset
To increase asset value
To simplify financial reporting
The primary purpose of depreciation is to reflect the consumption of an asset over time, matching the expense with the revenue generated by the asset.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary purpose of depreciation in accounting?
Solution: The primary purpose of depreciation is to reflect the consumption of an asset over time, matching the expense with the revenue generated by the asset.
Steps: 5
Step 1: Understand that depreciation is a way to account for the decrease in value of an asset over time.
Step 2: Recognize that assets are things a business owns, like buildings or equipment, that help generate income.
Step 3: Realize that as these assets are used, they lose value, which is called consumption.
Step 4: Learn that depreciation spreads the cost of the asset over its useful life, matching it with the income it helps produce.
Step 5: Conclude that the primary purpose of depreciation is to accurately reflect the cost of using an asset in financial statements.
