Which accounting term describes the allocation of the cost of tangible assets over their useful lives?

Which accounting term describes the allocation of the cost of tangible assets over their useful lives?

• A. Amortization
• B. Depletion
• C. Depreciation
• D. Accrual

Answer: (C)

Depreciation is the process of allocating the cost of a tangible asset over the periods it helps generate Revenue. This means spreading the expense across the asset’s useful life rather than taking all of it in the year of purchase, which matches the expense with the benefits received. As depreciation is recorded, the asset’s book value decreases through accumulated depreciation. If there’s a salvage value, the depreciable base is cost minus salvage. Amortization is for intangible assets like patents or goodwill, not physical items. Depletion applies to natural resources as they are consumed. Accrual is a general accounting principle about when revenues and expenses are recognized, not a method for spreading the cost of a tangible asset over time. For example, a $100,000 machine with a 10-year life would show depreciation expense each year, gradually reducing the asset’s carrying value.

Depreciation is the process of allocating the cost of a tangible asset over the periods it helps generate Revenue. This means spreading the expense across the asset’s useful life rather than taking all of it in the year of purchase, which matches the expense with the benefits received. As depreciation is recorded, the asset’s book value decreases through accumulated depreciation. If there’s a salvage value, the depreciable base is cost minus salvage.

Amortization is for intangible assets like patents or goodwill, not physical items. Depletion applies to natural resources as they are consumed. Accrual is a general accounting principle about when revenues and expenses are recognized, not a method for spreading the cost of a tangible asset over time. For example, a $100,000 machine with a 10-year life would show depreciation expense each year, gradually reducing the asset’s carrying value.