Asked by Veronica Castro on May 26, 2024
Verified
At the end of the year, any balance in Allowance for Repairs should be
A) closed to Repairs Expense
B) reported as a deferred credit
C) closed to Retained Earnings
D) reported as a contra account to the asset
Allowance for Repairs
A reserve of funds set aside by a company to cover anticipated repair costs for its assets.
Deferred Credit
Liabilities or income that have been recognized but not yet earned, and therefore, postponed to a future accounting period.
Contra Account
An account that is used to reduce the value of a related account on a financial statement and presents the net balance of both accounts.
- Understand the disclosure requirements for property, plant, and equipment in financial statements.
Verified Answer
AS
April SpellsMay 27, 2024
Final Answer :
A
Explanation :
Allowance for Repairs is a contra account to the asset account Repairs and Maintenance. At the end of the year, any balance in Allowance for Repairs should be closed to Repairs Expense to match the cost of repairs incurred during the year with the revenue earned. This will ensure that the balance sheet accurately reflects the true value of the asset. Therefore, the best choice is A, which states that the balance should be closed to Repairs Expense.
Learning Objectives
- Understand the disclosure requirements for property, plant, and equipment in financial statements.