Depreciation Adjustment for Fixed Assets

Explanation

An adjustment for depreciation expense matches expenses with revenues for the period, thus contributing to correct statement of net income for the period.

An end-of-period adjustment for depreciation of fixed assets is necessary primarily to recognize the expense of using fixed assets. Therefore, the correct answer is A.

Depreciation is a process by which the cost of fixed assets is allocated over their estimated useful lives. Fixed assets, such as buildings, machinery, and equipment, are used in the production of goods and services over a long period of time. However, their value gradually diminishes due to wear and tear, obsolescence, or other factors. Depreciation expense reflects this reduction in value and is recognized as an operating expense on the income statement.

The matching principle in accounting states that expenses should be recognized in the same period as the revenues they help generate. By recognizing depreciation expense, a portion of the fixed asset's cost is allocated to each accounting period, matching the cost of using the asset with the revenue it helps generate. This ensures that the financial statements accurately reflect the costs associated with generating the revenue during the period.

Moreover, the end-of-period adjustment for depreciation is necessary for a proper statement of net income. Net income is calculated by deducting all expenses, including depreciation expense, from revenues. Failing to account for depreciation would result in an understatement of expenses and an overstatement of net income.

The other options, B and D, are not entirely accurate. While recognizing the expense of using fixed assets is part of the answer, not all the options apply to the necessity of the adjustment for depreciation. Option B, "all of these answers," is too broad as it suggests that all the given options are correct, which is not the case. Option D, "to be consistent with the matching principle," is partially correct as it relates to the need for recognizing expenses in the same period as the revenues they help generate, but it does not encompass the full explanation for the necessity of the adjustment.

In summary, the end-of-period adjustment for depreciation of fixed assets is necessary primarily to recognize the expense of using fixed assets, adhere to the matching principle, and provide a proper statement of net income.