What type of entry is needed to recognize depreciation expense?

The correct response involves recognizing depreciation expense through an adjusting entry that impacts both the expense and the related asset account. Specifically, to record depreciation expense, a debit entry is made to the Depreciation Expense account, which increases the expense on the income statement.

Simultaneously, a credit entry is made to the Accumulated Depreciation account, which is a contra asset account that reduces the total value of assets on the balance sheet. This adjustment reflects the usage and wear and tear on fixed assets over time, aligning with the matching principle in accounting, which states that expenses should be recognized in the same period as the revenues they help to generate.

In this case, recognizing depreciation enhances the accuracy of financial reporting by showing the expense associated with asset usage. This approach highlights the ongoing consumption of the asset's value, maintaining transparency for stakeholders.