Question

What does the credit balance in the accumulated depreciation account represent?

a. cost of additional equipment purchased this year
b. the amount of depreciation taken in past years
c. cost of existing equipment was sold during the year
d. undepreciated cost of existing equipment
e. none of the above

Answer 1

The credit balance in the accumulated depreciation account reflects the total depreciation expense that has been recognized over the past years for an asset.

Step-by-step explanation:

The credit balance in the accumulated depreciation account represents b. the amount of depreciation taken in past years. It is a contra asset account that reduces the original cost of the asset to reflect its loss of value over time.

This account increases each year as more depreciation is expensed, and it helps in calculating the book value of the asset, which is the original cost minus the accumulated depreciation.

For example, if a company buys equipment for $50,000, and each year it depreciates by $5,000, after one year, the accumulated depreciation will have a credit balance of $5,000.

After two years, it will be $10,000, and so on, until the end of the asset's useful life or until the asset is disposed of. It is important to track this value for financial reporting and tax purposes.