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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Explain how recording depredation expense affects a company’s (a) income statement, (b) balance sheet, and (c) statement of cash flows.

To determine

Describe the manner in which the depreciation expenses recorded would affect the company’s (a) income statement, (b) balance sheet, and (c) Statement of cash flow.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

The recording of depreciation expense affects the financial statements of a company as follows:

a. Income statement:

Recording depreciation expense under income statement would decreases income before income taxes, income tax expense, and net income.

b. Balance sheet:

Recording depreciation expense increases the accumulated depreciation account, and decreases the net income, retained earnings and the book value of an asset of the company...

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