An end-of-period adjustment for depreciation of fixed assets is necessary
Click on the arrows to vote for the correct answer
A. B. C. D.C
An adjustment for depreciation expense matches expenses with revenues for the period , thus contributing to correct statement of net income for the period.
The correct answer is C. all of these answers are correct.
An end-of-period adjustment for depreciation of fixed assets is necessary for several reasons:
Proper statement of net income: Depreciation represents the systematic allocation of the cost of a fixed asset over its useful life. By recognizing depreciation expense, the net income of a company is properly stated, reflecting the gradual consumption of the asset's value over time. If depreciation expense is not recorded, net income will be overstated, leading to misleading financial statements.
Consistency with the matching principle: The matching principle states that expenses should be recognized in the same period as the revenues they help generate. Since fixed assets contribute to the generation of revenues over multiple accounting periods, their costs should be allocated over those periods through depreciation. By adjusting for depreciation at the end of each period, the matching principle is upheld, ensuring that expenses are properly matched with the revenues they help generate.
Recognition of the expense of using fixed assets: Fixed assets, such as buildings, machinery, and vehicles, are used in the operations of a business to generate revenues. Depreciation reflects the gradual wear and tear, obsolescence, or expiration of the asset's usefulness over time. By recording depreciation, a company recognizes the expense associated with using its fixed assets and accurately reflects the true cost of utilizing those assets to generate revenue.
In summary, the end-of-period adjustment for depreciation of fixed assets is necessary for a proper statement of net income, consistency with the matching principle, and to recognize the expense of using fixed assets. Therefore, option C, which states that all of these answers are correct, is the most appropriate choice.