Practice question · Multiple choice
Recording depreciation debits an expense but no cash moves. Why is it recorded at all?
Hints
- Ask which periods benefit from a machine bought once and used for ten years.
- Depreciation is not a valuation exercise.
Show the answer
C. Because the cost is consumed to produce this period's revenue
Why
Accrual accounting reports consumption, not payment. This is also why profit and cash flow differ, and why depreciation is added back in a cash-flow statement.
Practise Recording Transactions
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