When profit is determined from incomplete records, depreciation on business equipment should be treated as:
Correct answer: A. A business expense
- A. A business expense
- B. A personal drawing
- C. An increase in capital
- D. A cash receipt
Explanation
Depreciation represents the use of an asset during the accounting period and reduces business profit. It is recorded as an expense even though it does not involve a current cash payment.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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