What does it indicate if the depreciation expense account has a credit balance?

• A. Depreciation expense is overstated
• B. Depreciation expense is understated
• C. Additional review is needed as it is unusual
• D. The depreciation method used is incorrect

Answer: (C)

Depreciation expense is normally a debit because it represents a cost recognized on the income statement. Seeing a credit balance in this expense account is unusual and signals that something out of the ordinary has occurred. It could be an error in posting, a reversal, or an unusual adjustment that needs investigation to ensure the figures are correct. The other options describe changes in the amount of expense under normal recording (overstated or understated) or a faulty method, which would still typically show a normal debit balance rather than a credit. So the correct takeaway is that an unusual credit balance requires review.