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When a business buys equipment that will last several years, why is the cost debited to Equipment rather than to Equipment Expense?
ABecause expense accounts cannot be debited
BBecause equipment is always paid for in cash
CBecause the item benefits more than one accounting period
DBecause expenses are reported on the balance sheet
Answer & Solution
Correct answer: C. Because the item benefits more than one accounting period
1. Expenses are costs related to a particular accounting period.
2. Equipment is relatively expensive and lasts more than one accounting year.
3. Because its benefit spans several periods, it is recorded as an asset, not a single-period expense.
4. Expense accounts can be debited (A is false), payment method is irrelevant (C), and expenses appear on the profit or loss statement, not the balance sheet (D).
5. Therefore it is an asset because it benefits more than one period.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.4 "Balance Sheet Account Transactions", p.38_
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