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Which principle prevents a fixed asset's ledger account from being credited directly when depreciation is recorded, forcing the use of Accumulated Depreciation instead?
AThe matching principle, which links expenses to the revenue of a period
BThe cost principle, which keeps the asset recorded at what was paid for it
CThe accrual principle, which recognises events when they take place
DThe going-concern assumption, which presumes the business will continue
Answer & Solution
Correct answer: B. The cost principle, which keeps the asset recorded at what was paid for it
1. The cost principle requires a fixed asset's ledger balance to remain at its cost.
2. So Equipment cannot be credited to reduce it; a contra account (Accumulated Depreciation) is credited instead.
3. Therefore B is correct.
4. Matching governs expense timing, accrual governs recognition, and going-concern is a separate assumption, none of which dictate keeping the asset at cost.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.3.1 "Fixed Assets—Deferred Expense", p.73_
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