Question

A corporation's depreciation in the current year is $800. The company's accountant recorded the year-end adjusting entry for depreciation as a debit to depreciation expense for $800 and a credit to cash for $800. The company's

A. net income will be correctly stated but total assets will be overstated by $800.

B. net income and total assets will be overstated by $800.

C. net income and total assets will be correctly stated.
net income and total assets will be understated by $800.

D. net income will be correctly stated but total assets will be understated by $800.

Answer 1

The incorrect accounting entry for depreciation led to the understatement of total assets by $800; however, the net income was correctly stated as the right expense amount was recorded.

Step-by-step explanation:

The correct treatment for recording depreciation in a company's accounting records is a debit to the depreciation expense and a credit to accumulated depreciation, not cash. Since the question states that the company's accountant incorrectly credited cash instead of accumulated depreciation, the error affects both the net income and total assets. The net income is understated because the expense is recognized correctly, but the cash should not have been reduced. The total assets are understated as well since the cash was incorrectly reduced and there's no increase in accumulated depreciation.

Therefore, the correct statement is: The company's net income will be correctly stated but total assets will be understated by $800.