How is depreciation recorded for a fixed asset with a cost of 10,000, accumulated depreciation of 2,000, and 2,000 of annual depreciation?

• A. Debit Accumulated Depreciation; Credit Depreciation Expense
• B. Debit Cash; Credit Depreciation Expense
• C. Debit Depreciation Expense; Credit Cash
• D. Debit Depreciation Expense; Credit Accumulated Depreciation

Answer: (D)

Depreciation is recorded by recognizing an expense and increasing the accumulated depreciation balance, which is a contra-asset. For the period, you would debit Depreciation Expense for 2,000 and credit Accumulated Depreciation for 2,000. This raises the accumulated depreciation from 2,000 to 4,000, reducing the asset’s net book value to 6,000 (10,000 cost minus 4,000 accumulated depreciation). Depreciation does not involve cash, so entries that debit or credit cash aren’t appropriate. Debiting the wrong account (such as Accumulated Depreciation) would not properly reflect the expense and the accumulating contra-asset.