Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 4 - Accrual Accounting Concepts - Questions: 9

Answer

No, it is not true. Depreciation is not a process of valuation that results in the reporting of fair market value of the asset.

Work Step by Step

Depreciation is an allocation concept and not a valuation concept. Therefore, deprecation allocates an asset's cost to the periods in which it is used. An adjusting entry for depreciation is needed to recognize the cost that has been used, expense out during the period and to report the unused cost at the end of the period.
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