Depreciation affects which financial statements directly?

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Prepare for the Fundamentals of Accountancy, Business, and Management (FABM) 1 Exam. Study efficiently with multiple choice questions and detailed explanations. Enhance your knowledge and succeed in your exam with confidence.

Multiple Choice

Depreciation affects which financial statements directly?

Explanation:
Depreciation is recorded as an expense on the income statement, which lowers net income for the period. The corresponding credit goes to accumulated depreciation, a contra-asset on the balance sheet, reducing the asset’s net book value. So depreciation directly affects both the income statement and the balance sheet. It does not involve actual cash in the period (it’s a non-cash expense), though it does influence the cash flow statement indirectly when preparing cash flows from net income via the indirect method.

Depreciation is recorded as an expense on the income statement, which lowers net income for the period. The corresponding credit goes to accumulated depreciation, a contra-asset on the balance sheet, reducing the asset’s net book value. So depreciation directly affects both the income statement and the balance sheet. It does not involve actual cash in the period (it’s a non-cash expense), though it does influence the cash flow statement indirectly when preparing cash flows from net income via the indirect method.

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