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Why is the cost of a fixed asset such as equipment NOT recorded as an expense at the date of purchase?
ACash purchases of any kind are recorded directly to equity rather than expense
BFixed assets are never expensed because they retain their full value permanently
CThe full cost is expensed only in the final month of the asset's useful life
DIt has a long life and is expensed gradually over its useful life through depreciation
Answer & Solution
Correct answer: D. It has a long life and is expensed gradually over its useful life through depreciation
1. D fixed asset has a long life of more than one year, so its cost benefits many periods.
2. It is first recorded as an asset and then expensed off gradually via depreciation, matching cost to use.
3. Therefore D is correct.
4. B is false since assets do get used up; C and A misdescribe the timing and the account affected.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.3.1 "Fixed Assets—Deferred Expense", p.72_
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