O Level Accounting (7707)•7707/12/M/J/21

Explanation
Depreciation Matches Asset Costs to Revenues
Steps:
- Depreciation allocates the cost of non-current assets over their useful life.
- This spreads the expense to periods benefiting from the asset's use.
- The matching principle requires expenses to align with related revenues in financial statements.
- Option C directly reflects this core accounting principle.
Why the correct option is correct:
- Depreciation applies the matching principle by charging asset costs against revenues generated over the asset's life, as defined in accrual accounting standards.
Why the others are wrong:
- A: Depreciation distributes costs across years, not concentrates them in the purchase year.
- B: Book value results from depreciation but is not its primary purpose.
- D: Depreciation is non-cash and aids cash retention indirectly, but the goal is expense matching, not cash management.
Final answer: C
Topic: Accounting for depreciation and disposal of non-current assets
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