Answered: Explain why depreciation expense is…

Explain why depreciation expense is added back to net income and why an increase in inventories is deducted from the net income.

College Accounting (Book Only): A Career Approach

13th Edition

ISBN:9781337280570

Author:Scott, Cathy J.

Publisher:Scott, Cathy J.

Chapter12: Financial Statements, Closing Entries, And Reversing Entries

Section: Chapter Questions

Problem 1QY: What is the term used for the profit on a sale before any operating expenses have been deducted? a....

See similar textbooks

Related questions

Q: Repairs and maintenance costs are normally: O a. Expensed in the profit or loss as incurred. O b.…

A: All expenses which are having short term benefit or benefit for only one year, that should be…

Q: What is Accounting Depreciation?

A: Definition: Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on…

Q: The following are deductions from items of income, except: * Cost of sales or service Regular…

A: 1) Cost of sales or service refers to the direct cost of producing the goods sold by a company. It…

Q: Under this concept a profit is earned only if the financial (or money) amount of the net assets at…

A: The financial capital maintenance conception is that the capital of a corporation is barely…

Q: After the disposal of an asset, the balance in the Accumulated Depreciation account related to that…

A: Depreciation are required to be charged by the business entities so as to shown the assets in the…

Q: Reversing entries maybe used in unearned income when the original 1 point collection is recorded as…

A: Answer In a business unearned income record as a assets instead of a liability.

Q: Cost of property asset minus accumulated depreciation is equal to net book value. T/F

A: The depreciation expense is charged on fixed assets as reduced value of the fixed asset with usage…

Q: Determine the net income (loss) for the period.

A: Adjusted trial balance: Adjusted trial balance is summary documents from all the ledger balances…

Q: Define the term Accounting for Depreciation?

A: Depreciation: It is the reduction in the value of an asset due to factors like normal usage or…

Q: Adjusted Net Asset Value method

A: Assets represent the future economic value of the company that is sacrificed in order to pay off the…

Q: Describe the depreciation procedures used in income taxation

A: The question deals with the depreciation procedures used in income taxation.

Q: Loss on fire is included in the computation of net income.

A: Net Income: Gross revenue less cost of goods sold, selling, general and administrative expenditures,…

Q: Is it possible for costs such as salaries or depreciation to end up as assets on the balance…

A: Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the…

Q: What is the relationship between depreciation and net income?

A: Depreciation is the part of cost of a asset which is charged to income statement yearly as a expense…

Q: financial statement does depreciation expense go on

A: Depreciation expense is an estimate of wear and tear caused to a fixed asset due to its use in the…

Q: Describe the relationship between the expense recognition(“matching”) principle and accounting for…

Q: Property taxes, office expenses, and insurance and depreciation on nonmanufacturing assets are…

A: Budget: A budget is an estimation to determine the income that will be earned and expenses that will…

Q: Why does the depreciation included in computing the annual cost of annual worth method but not in…

A: Depreciation is a separate provision for fixed assets. Fixed amount is charged out of profit during…

Q: In the recording of depreciation expense, which account is credited?

A: Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income…

Q: Which of the following is the correct calculation of book value? a. Cost - Impairment expense b.…

A: Book value (B.V) is the worth of the asset at a specified date.

Q: Which of the following is not included under other income? a. Rent received b. Commission received…

A: OTHER INCOME: IT IS THE INCOME THAT DOES NOT COME FROM THE FIRMS MAIN BUSINESS.

Q: Depreciation expense is used to

A: Depreciation is gradual decrease in the value of asset due to normal wear and tear, obsolescence and…

Q: Explain Treatment of Depreciation Expenses?

A: Depreciation is the total charging of the cost of an asset over its normal valuable life. The method…

Q: Accumulated depreciation is record on the balance sheet as ___? A. A reduction in corresponding…

A: The depreciation expense is charged on fixed assets as reduced value of the fixed asset with usage…

Q: the equation for book value is: book value = cost of an asset minus its accumulated depreciation.…

A: Asset: Asset is a resource owned by a company from which future economic benefits are expected to…

Q: Distinguish between ‘Receipts and Payments Account’ and ‘Income and Expenditure Account’ on the…

A: Table showing difference between" Receipts and Payment Accounts" and "Income and Expenditure…

Q: Explain the term Treatment of Depreciation Expenses?

A: Depreciation is a charge calculated on the value of fixed assets, based on normal wear and tear due…

Q: 1. What is the correct net sales for the year? 2. What is the correct cost of sales for the year? 3.…

A: You have asked four sub-parts of the question but as our protocol is to solve first three sub-parts…

Q: Compute for the TOTAL amount of Accumulated depreciation for the company's PPE

A: Depreciation Expenses It is important to provide depreciation cost to the assets which can reveal…

Q: Which of the following is used when computing for the accounting rate of return (ARR)? a. Income…

A: The accounting rate of return is the average net income an asset is expected to generate on the…

Q: OPERATING ACTIVITIES Net Income Adjustment for depreciation Adjustment for current assets Adjustment…

A: Net Income = $144000 Adjustments made to net income to get Operating Activities.

Q: he amount of accumulated depreciation fo O A. cash payments for selling and admi

A: The accumulated depreciation is the sum of the total depreciation expense incurred on a particular…

Q: Why is depreciation on the income statement different from the depreciation on the balance sheet?

A: Depreciation is the reduction in the value of asset during a period of time due to wear and tear.…

Q: How depreciation has calculated all step in details?

A: Financial Statements:-These are statements prepared by the company in order to know its financial…

Q: The financial capital concept requires that net assets shall be measured at current cost adjusted…

A: so, the correct answer is 3) Historical cost

Q: Describe the method of Accounting for Depreciation and Income Taxes?

A: Generally Accepted Accounting Principles (GAAP): Generally Accepted Accounting Principles are the…

Q: Subtracting all expenses from revenues yields Net liabilities O Net profit/Loss O Long-term assets O…

A: Net Liabilities - It is a difference between total debt ( short term + long term ) and cash &…

Q: If an asset is sold at a gain, why is the gain deducted from net income when computing the netcash…

A: Statement of cash flows: Statement of cash flow is a financial statement that shows the cash and…

Q: While calculating operating profit which will not be added back to net profit a. Preliminary…

A: Solution:- While calculating operating profit the following item will not be added back to net…

Q: Explain how depreciation expense satisfies the definition of an expense

A: Depreciation is the amount with which an asset’s value decreases every year. Example:- Machinery…

Q: Can stright line depreciation method be used to manage earnings. Explain

A: A depreciation expense reduces net earnings when the asset's cost is allocated on the income…

Q: What is depreciation, and how is it computed

A: SOLUTION- MEANING OF DEPRECIATION- IT CAN BE DEFINED AS A CONTINUING, PERMANENT AND GRADUAL DECREASE…

Q: What effect does the recognition of depreciation expense have on total assets? On total equity

A: Depreciation expense is recorded by debiting the depreciaton expense account and crediting…

Question

Explain why depreciation expense is added back to net income and why an increase in inventories is deducted from the net income.

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

What is the term used for the profit on a sale before any operating expenses have been deducted? a. Net Income b. Net Profit c. Gross Profit d. Gain on Sale e. All of the above
Which of the following is a measurement of earnings that represents the profit before interest, taxes, depreciation and amortization are subtracted? A. net income B. retained earnings C. EBITDA D. EPS
If a company capitalizes costs that should be expensed, how is its income statement for the current period impacted? A. Assets understated B. Net Income understated C. Expenses understated D. Revenues understated
When total revenues exceed total expenses, the difference is called net loss.
Expenses represent outflows of assets or increases in liabilities as a result of efforts to produce revenues.
Why is depreciation on the income statement different from the depreciation on the balance sheet?
Which of the following is a permanent account? Accumulated Depreciation Dividends Depreciation Expense Sales Revenue
In financial accounts, what is the point of include depreciation as an expense?
Accumulated depreciation is record on the balance sheet as ___? A. A reduction in corresponding liability B. A reduction to the corresponding asset C. An increase in the corresponding liability D. An increase in the corresponding asset
What is the difference between Accumulated Depreciation and Depreciation expense? What statements do both appear on? What account are they on? Do they have a DR or CR balance?
Which of the following is used when computing for the accounting rate of return (ARR)? a. Income before depreciation but after taxes. b. Income after depreciation and taxes. c. Income before depreciation and taxes d. Income after depreciation but before taxes.
Which financial statement does depreciation expense go on? Thank you!