What is the purpose of an asset account?

What is the purpose of an asset account?

• A. To track the depreciation expense of an asset.
• B. To record the accumulated depreciation of an asset.
• C. To represent the initial value of an asset.
• D. To calculate the profit generated by an asset.

Answer: (C)

An asset account exists to record the cost of resources a business owns that will provide benefits in the future. It shows the asset’s initial value at the time of purchase, which is the amount recorded as the asset’s cost. Depreciation expense is not kept in the asset account; it’s recorded separately to allocate the asset’s cost over its useful life. The accumulated depreciation that has built up over time appears in a separate contra-asset account, which reduces the asset’s carrying amount on the balance sheet. Profit is determined from revenues minus expenses, not from the asset account itself. So the asset account’s purpose is to represent the asset’s initial value.

An asset account exists to record the cost of resources a business owns that will provide benefits in the future. It shows the asset’s initial value at the time of purchase, which is the amount recorded as the asset’s cost. Depreciation expense is not kept in the asset account; it’s recorded separately to allocate the asset’s cost over its useful life. The accumulated depreciation that has built up over time appears in a separate contra-asset account, which reduces the asset’s carrying amount on the balance sheet. Profit is determined from revenues minus expenses, not from the asset account itself. So the asset account’s purpose is to represent the asset’s initial value.