On August 1 the Darius Co. purchased a photocopy machine for $8,000. The estimated annual depreciation on the machine is $1,680. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be:

Debit Depreciation Expense $700

Credit Accumulated Depreciation $700

Explanation:

Depreciation is defined as the loss of value of an asset over its useful life. After its useful life the value of the asset is its salvage value.

The depreciation is usually moved on a monthly basis to the accumulated depreciation.account. It is a temporary account.

At year end the accumulated depreciation account is nilled off and the depreciation expense is recognised.

The photocopy machine was purchased in August, so by December 5 months would have passed. Yearly depreciation is $1,680.

Depreciation by year end= (5/12)*1,680

Depreciation by end of year= $700

This is the amount that will be moved from accounulated depreciation to depreciation expense at year end.

December 31, accrued depreciation expense on photocopy machine:

Dr Depreciation expense 700

    Cr Accumulated depreciation - Equipment (photocopy machine) 700

Explanation:

Accrual accounting states that revenues and expenses must be recognized during the periods when they occur, regardless of when they are collected or paid.

In this case, 5 months passed between August 1 and December 31, so the amount of depreciation expenses that must be recognized = 5/12 x $1,680 = $700

Accumulated depreciation is a contra asset account that reduces the value of asset accounts, and must be reported in the balance sheet (that is why it needs to be specific).

1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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