Spreading out the cost of an item over its expected life is called what?

Spreading out the cost of an item over its expected life is called what?

• A. Accumulated depreciation
• B. Depreciation
• C. Depreciation expense
• D. Service life

Answer: (B)

Spreading the cost of an item over its expected life is just depreciation. It allocates the asset’s initial cost across the periods that will use or benefit from it, matching the expense to the time the asset helps generate revenue. Accumulated depreciation is the total amount of depreciation that has been recorded to date; it’s a contra asset that reduces the asset’s book value. Depreciation expense is the portion recognized in a specific period, such as a year. Service life, or useful life, refers to how long the asset is expected to be useful, not the accounting entry itself. Example: if you buy an asset for $10,000 with a 5-year life and use straight-line depreciation, depreciation expense would be $2,000 per year. After three years, accumulated depreciation would be $6,000, and the asset’s book value would be $4,000 ($10,000 minus $6,000).

Spreading the cost of an item over its expected life is just depreciation. It allocates the asset’s initial cost across the periods that will use or benefit from it, matching the expense to the time the asset helps generate revenue.

Accumulated depreciation is the total amount of depreciation that has been recorded to date; it’s a contra asset that reduces the asset’s book value. Depreciation expense is the portion recognized in a specific period, such as a year. Service life, or useful life, refers to how long the asset is expected to be useful, not the accounting entry itself.

Example: if you buy an asset for $10,000 with a 5-year life and use straight-line depreciation, depreciation expense would be $2,000 per year. After three years, accumulated depreciation would be $6,000, and the asset’s book value would be $4,000 ($10,000 minus $6,000).