A contractor buys a major tool that will be used for several years. Which concept best matches spreading its cost over useful life?
Correct Answer
A) Depreciation.
Depreciation allocates the cost of a long-lived asset over its useful life.
Why This Is the Correct Answer
Depreciation allocates the cost of a long-lived asset over its useful life.
Why the Other Options Are Wrong
Option B: Owner draw.
An owner draw takes money out of the business; it does not spread an asset's cost.
Option C: Accounts receivable.
Accounts receivable is money customers owe, not an asset's cost spread over time.
Option D: Retainage.
Retainage is a withheld part of a progress payment.
Reference Hint
Study anchor (closed-book): memorize asset cost allocation from CSLB Law and Business Study Guide; CSLB 2026 Law Book / CSLB Law and Business Study Guide Business Finances; know the rule or calculation trigger without relying on exam-room lookup.
Independent practice; verify any reference hint against the edition and category permitted for your booking. Official exam and reference-list sources →
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